Don't File That Insurance Claim!

Source:Fool.com Author:Selena Maranjian Date:03/25/14 Click:

If you've filed three or more small claims in a single year, home insurers can raise your rates -- or even refuse to renew your policy.

That's the word from Carolyn Gorman of the Insurance Information Institute, quoted in a recent issue of Bottom Line Personal. I couldn't believe it, but other sources seemed to agree.

My online digging turned up this quote from a Kiplinger.com article by Kimberly Lankford: "Insurers say that even small claims cost them a lot in administrative expenses, so they're quick to drop customers who file them." She added that "companies are especially leery of water-related claims because they could lead to more damage in the future."

The California Insurance Department studied this issue; among the companies it surveyed, 25% had refused to renew policies of those who filed one or two non-water-damage claims in the preceding three years. In addition, 32% refused to renew customers with one or two water-related claims. Yikes!

Even worse, if your insurer drops you, don't assume that you can just sign up with another one. Lankford pointed out that many insurance companies share information with each other regarding claims, via the Comprehensive Loss Underwriting Exchange (CLUE) database from ChoicePoint (NYSE: CPS - News). The database keeps information on claims for at least five years.

Trouble for new homeowners, too
That wasn't the first I'd heard about the CLUE database. When some folks buy a home, and then try to buy homeowner insurance for it, they can be denied coverage or charged steep rates -- because of the previous owners' claim history. A prospective insurer can look up the property's history via CLUE. If the old owners made several claims related to water damage, the property can look like a bad risk.

Before you buy a home, consider requesting a copy of its CLUE report. The seller may need to procure it for you.

What to do
Gorman advised not filing claims for amounts just a few hundred dollars above your deductible. If you can afford it, she suggests raising your deductible as well. You can save perhaps 25% on your premiums by hiking your deductible from $500 to $1,000.

Need yet another way to save? Again, consider filing fewer claims. Many insurance companies will credit your policy with a discount of as much as 5% for each year you don't file a claim, for a total of up to 25% or 35%. That's not small change. Saving 20% on a $1,000 policy puts $200 more in your pocket. Over five years, that's $1,000. That sum can definitely help relieve the sting of not filing a $300 claim.

It's clearly important to shop around for the best insurer for yourself. Don't just look for the lowest price -- consider discounts you might qualify for, among other factors. The Internet can be a great place to start digging. The websites of insurers such as American International Group (NYSE: AIG - News), Hartford Financial (NYSE: HIG - News), Travelers (NYSE: TRV - News), and Nationwide (NYSE: NFS - News) tend to have helpful information, both for policyholders and for the general public.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.

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