Major damage to your home can also do damage to your wallet, and homeowner’s insurance is intended to help manage some of that cost. However, simply having insurance doesn’t mean that you should file a claim every time something goes wrong with your house.
“Insurance isn’t meant to be a home warranty program,” says Colt Henderson, an insurance agent and manager with American National Property and Casualty Company (ANPAC). “Small things such as a broken window or a stain on the carpet are generally not worth making a claim on.”
Small homeowner’s insurance claims now can lead to higher premiums later
“I recommend that my clients have at least a $1,000 deductible,” says Henderson. He points out that this level of deductible will help keep premium costs down and can also make it easier to gauge whether an insurance claim would be worthwhile.
“Homeowner’s insurance is very sensitive to claims,” Henderson adds. “Several claims will make you ineligible for getting insurance from many companies or even cause your rates to jump.”
Henderson tells the story of one homeowner who filed a $900 theft claim and then saw her rate jump by more than $900 a year. He says it may not be worth filing a claim for less than $1,000 because “[your] insurance rate will probably increase more than you will be getting from the insurance company.”
Several small claims also can raise red flags for insurers when you shop around. Too many claims could make you an undesirable candidate for insurance because the company may believe it will be regularly making payouts. Henderson recommends saving claims for major damage, such as that caused by a natural disaster, fire, or theft.
Henderson also recommends first determining if you can resolve the issue on your own. “Talk with your local service providers, contractors, or restoration companies,” he suggests. “If they know you are paying for it personally, they may work with you to get repair costs down.”
Henderson also points out that your best defense can often be proper maintenance.
“Upkeep of a home is sometimes part of the cost of homeownership,” he says. Taking care of small problems before they become large issues means you are less likely to run into difficulties that require a homeowner’s insurance claim.
Set up an emergency fund and limit your claims
You may not want to file a claim unless the cost exceeds your deductible or what you can pay on your own. Instead, you may want to start an emergency fund that is at least as much as your deductible (or larger) so that you aren’t tempted to file a claim for something relatively small.
Additionally, consider starting a home maintenance and repair fund to cover general upkeep costs. Budgeting for these items can help you streamline your finances and avoid painful costs later.
Henderson says that you should make sure your home is properly insured to protect against common problems in your area, like flooding, tornadoes, or earthquakes. “Make sure you are covered for the big scary things,” he says. “Insurance is designed for the major catastrophes, so you need to be ready to cover the smaller problems yourself.”
Miranda Marquit is a freelance journalist specializing in financial topics. Read more of her writing on Huffington Post, Wise Bread, AllBusiness, and at her website, Planting Money Seeds. Follow her on Twitter: @MMarquit
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