Catastrophe vs. Maintenance

Fixing Washer

In the insurance business, we frequently need to have some difficult conversations.  The past couple of years, we have discussed the changes in insurance. We’ve talked about ever increasing premiums, valuation increases due to inflation, the increasing number and severity of storms, companies requiring higher deductibles, how roof coverage is changing, cosmetic exclusions, etc. 

Do you gamble and self-insure? If you total your car or a tornado demolishes your home, then YOU pay to replace or rebuild. You are essentially paying for your car or house twice. 

Buying insurance can be a gamble as well.  You may pay insurance premiums for years and never have a claim.  However, the coverage is there if you need it.  Keep in mind that one claim could easily exceed years of premium payments. 

Insurance is designed to help put you back to the same condition you were in prior to a loss.  Insurance companies provide protection against unexpected losses that could cause financial hardship on you and your family. It is not designed to be a maintenance program.  

To claim or not to claim?  You pay a lot for insurance, and you have the right to use it.  However, you need to understand that using your insurance frequently may result in undesirable consequences.  Companies may surcharge for claim history, require a higher deductible, or possibly cancel/non-renew your coverage due to an excessive number of claims.  It can be difficult to find another company that will write coverage after you have been cancelled due to claim history.     

Let’s look at some smaller claim situations:

  • Your washer quits working after a power surge from lightning.  Lightning damage is covered by your policy. Assuming you have a $500.00 deductible, the cost to repair/replace the washer is $798.00, so insurance would pay $298.00.  Is it worth turning in a claim?              
  • A few weeks later, a windstorm blows a tree limb down and it knocks the gutters off one side of your home.  The cost to repair is $845.00.  Again, assuming a $500 deductible, insurance would only pay $345.  Is it worth turning in this claim?     
  • Several months later, your teenager is playing ball and accidentally breaks the neighbor’s garage door window.  There is no deductible for a liability claim, and the repair bill is only $250.  Insurance would pay the $250 bill.  Should you turn in this claim?     HEAR US OUT –don’t quit reading yet.

Insurance would have paid $893.00 for the 3 claims listed above, but is it worth submitting these claims?  Companies look at claim history when determining insurability and premium costs. If you turn in ALL the claims, this tells the insurance company that you are probably going to turn in every possible loss.  They may decline to write coverage because you are a less profitable risk.

Before you turn in a claim, take a few moments to consider:  Can you handle paying for this loss yourself?  Does paying the loss out of pocket put your finances in jeopardy?  Is it worth having this claim listed on your claim history? This same consideration should be taken before submitting auto insurance claims.  Companies surcharge for accidents for 3 years!  Talk to your agent and weigh your options before submitting a claim, as all claims show up on your insurance record; even when the damage ends up being less than your deductible. 

Contrary to popular belief, insurance companies aren’t making money hand over fist.  Companies have had devastatingly high loss ratios these past 5-10 years. (Loss ratio is determined using the total of losses paid divided by the amount of premium received). As a result, companies have been forced to make changes. Some companies are no longer writing coverage, while others are being very selective about the type of business they will accept.  The only answers to high loss ratios are to either raise premiums, get rid of the poor performing risks, or go out of business. Companies can’t stay in business if they are losing money. 

In short, we all need to change our mindset and only use insurance when necessary.  We need to remember that insurance coverage should be for catastrophic losses, not for maintenance, or for the “small stuff”.  We know this is very frustrating, but we all need to do our part to help prevent more coverage changes and large premium increases in the future. 

Please give us a call before submitting a claim. 

We will help you weigh the pros and cons of your specific situation. 

- Kathy, Kristen, Allisa, Sara Jo & Dani

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