The following was written by Alan Wallace, a senior private wealth advisor for Ronald Blue Trust’s office in Birmingham, Alabama.
Given our comprehensive financial planning perspective as advisors, clients frequently ask for our thoughts about the best way to pay for unexpected expenses. When it comes to damage to their home, most homeowners will consider making a claim on their homeowners insurance. After all, most homeowners buy insurance because it’s required, even though they hope that they never have to use it.
If you’ve experienced property damage or loss due to weather-related events, fire, or theft, there are several effects of filing a claim that you should know about. For example:
- If the homeowner files frequent claims–say four claims in three years, regardless of the amount–the insurance company is likely not to renew the coverage when the policy anniversary arrives.
- If someone has coverage with a company and calls another company to shop their coverage, the new company generally cannot quote on the business if the policyholder has had a claim in the past three years.
- If a policyholder has an adjuster come out to assess damage to their home, the company may characterize the event as a claim, even if the insurance company makes no settlement payment to the homeowner.
Although homeowners should certainly file a claim when they need to, this information should caution them to do so only after careful consideration. The insurance industry has access to a seven-year database of auto and homeowners insurance claims (Comprehensive Loss Underwriting Exchange, or CLUE).1 Those records allow any insurance company to see the claims history of an individual or a particular property. If your homeowners coverage is not renewed for frequency or size of claims, you could be forced to seek higher cost coverage from a subprime issuer specializing in “high risk” cases until your claim history is clean for three years.2
In light of these facts, what should you do? Here are some suggestions.
- Consider whether to file small claims. Instead, you can opt for a relatively higher deductible and maintain an adequate emergency reserve in your financial plan to cover smaller losses. Have a repair professional (plumber, roofer, or electrician) assess the magnitude of the cost to correct the problem before calling an insurance adjuster.
- Actively protect yourself against losses by maintaining your property, appliances, and equipment in ways that reduce risk. For example, trim or remove diseased trees, replace older laundry hoses, install surge protectors, etc.
- Keep a record of your claims history so that you can make an informed decision before starting the claim process. Ask your agent about the possible impact on your premium or renewal if you file a claim.
Insurance companies are in business to make a profit. If your claims history leads them to believe that you will not be a profitable policyholder, they may not renew your coverage. You can reduce the risk of losing coverage and the hassle of shopping for a high-priced policy by knowing the facts and having funds set aside for emergencies.
At Ronald Blue Trust, our advisors have the expertise to guide you as you face unexpected expenses such as damage to your home. If you’d like to learn more about our services, please contact a Ronald Blue Trust advisor by calling 800.987.2987 or emailing [email protected].