Tuesday, January 5, 2010

Covered In Raw Sewage, I Chose Not To File A Claim

My new year's day started out with a bang...literally! At noon I was standing on top of my sewage system (the system is required because I live on the side of a hill and have to pump the sewage to the top) wondering why it was not working. Unfortunately, that is when it blew up - showering 100+ gallons of raw sewage on my basement ceiling...walls...and me! I carry the proper coverage on my insurance to pay for clean up as well as repairs, but instead of filing a claim I spent the next 4 hours cleaning and sterilizing and then covered the $2,000 bill myself, instead of filing a claim.

Why would I choose NOT to file a claim and take on the cleanup and plumbing bills myself?
That's a good question - one I asked myself multiple times during the ordeal! The answer has to do with what your home insurance is really designed for, and what happens if you have to use it too often. Here's the quick run down:

  1. What home insurance is designed for: Home owner's insurance was originally designed to cover the large, catastrophic events that could happen to a home - a fire, tornado, etc. - where you pretty much lost your home and had no place to live. That would have a devastating effect that most families would not be able to recover from. Over the years, people's IDEA of what their home insurance should pay for has changed - broken windows, small thefts, new roofs, etc. This new way of thinking has caused most people's home insurance rates to rise more than 100% over the past decade alone, because as insurance companies experience more claims EVERYONE shares the cost of those claims through rate increases. Also, every person who files a claim pays an extra charge - a penalty for filing the claim (no matter whose fault the claim or what kind of claim), and they see even larger price increases for at least the next 3 years. 
  2. What happens if you use your home insurance to often: Most insurance companies allow for 2 claims every 3 years (although it is becoming more common for companies to allow for 2 claims every 5-6 years). If you go over your company's claim limit your policy will most likely be non-renewed. If you find yourself without insurance due to the amount of claims you have filed, you will probably find you are forced to pay three or four times the normal rates to get a new policy - IF YOU CAN FIND ONE AT ALL! I've seen clients forced to go to a state issued policy that offers minimal coverage and still costs four times as much because no company would offer them a policy due to their claims history.
I've seen it happen more times than I can count, a client chooses to file a small claim (thinking it will be years before anything else happens) only to be hit with something major later on the same year. The result - the insurance company chooses to cancel the policy at the next renewal, forcing the client into a much higher priced high-risk policy. Had I wanted, I could have saved myself the cleanup (my policy would pay for it) and cut my cost down to $1,000 (my deductible), but I chose to save my policy just in case it is really needed for something major.

I recently lost a great client because they chose to file 3 small claims in 18 months for a total of $2,500 in total payouts by their company. The result - their home insurance went up to over $5,000 per year for a policy with a high-risk provider, AND the new policy specifically excluded the type of loss that they had repeatedly filed on their old policy!

Before you file a claim, PLEASE consult your local, professional agent about the pro's and cons of the claim. Insurance is there if you need it, but if your insurance company thinks you are abusing the system it won't be long before you find yourself with no insurance at all!

Have you ever chosen NOT to file a claim? Let us know about your experience, we'd love to hear from you!


Anonymous said...

that is very helpful information. what an experience to go through. thanks for sharing

Robert & Titian said...

Thanks for the comment! I hope no one else EVER has to deal with something like that.