One thing that sets insurance apart from other consumer products, is that it’s something we all have to buy, but hope to never need to use. So when is it worth making a claim?
Insurance policies are designed to address most of the common losses faced by business owners, home owners, and vehicle owners. That being said, it’s not always worth your while, or in your best interest to make a claim – so how do you know?
Insurance policy rating is almost always “usage based” meaning that using a policy to make a claim will almost always impact the rating of your policy come renewal time.
When making a claim, it’s always a good idea to think of your “total cost of making a claim” rather than simply thinking about your deductible or your claims free discount. Generally speaking, a claims free discount is 10 – 15% of your premium, and is removed for 3 years following a claim. Following that, the total cost of making a claim is then your deductible plus 10-15% of your premium X 3 years. For most homeowners, the total cost of a claim isbetween $1,500 – $2,500.
There are other considerations when making a claim as well. Did you know that when you apply for insurance, your insurance company will check your claims history in a shared database that contains information on almost all property claims? A claims check for a new application typically spans the prior five years. Insurance companies often have a policy of declining an application, or applying premium surcharges and coverage restrictions where there are two or more claims in a five year period. It’s good to keep this in mind, when a claim is close to your “total cost of making a claim” sometimes it’s best to cover the expense out of pocket, just to keep that claims history clear in case something major happens.
The advantage of having a broker, is that you have a representative who works for you, not the insurance company. A broker can discuss your options, help you figure out your “total cost of making a claim”, and help you make the claims decisions that are right for you.
Knowing what’s covered
Nothing is more disappointing than going to your insurance company to make a claim only to find out that you don’t have coverage for the loss that has just occurred. What can you do to help avoid this horrible feeling?
One of the best ways to prepare for a claim, is to know what your policy does and does not cover well in advance of anything going wrong. That way there are no surprises when it comes time to submit a claim to your insurance company. It’s always a good idea to do what you can to prevent a loss to your property. Knowing the types of losses that aren’t covered allows you to take extra steps to avoid such losses when possible, and also prepares you to deal with those losses in the situations where you can’t prevent them.
For example, for the vast majority of property owners, it is impossible to obtain coverage for over-land flooding. Knowing this in advance allows a homeowner to be extra diligent in ensuring their property has proper drainage to avoid having water enter their property. In situations where drainage can’t be arranged, have a plan to deal with flooding, such as storing property in your basement on shelves, keeping spare pumps and fans on hand just in case.
In any event, knowing what your insurance policy can and cannot cover in advance can help prevent disappointment when you go to make a claim.
When you buy an insurance policy whether for your home, vehicle, or business make sure you know what’s covered before you sign on the dotted line. A great question to ask is “what coverages (if any) are available that this policy doesn’t provide me with”. You don’t always have to buy every coverage option out there, but knowing what is available allows you to make the buying decisions that are best fit for you current needs.
Another great way to start to understand your policy is to ask your insurance provider to go over a few examples with you of losses that are covered, and some examples of losses that are not covered. Ask questions about specific types of losses that you’re particularly concerned about. This may mean talking about a special item you own, or a specific kind of loss you’re worried about (ie: theft)
Your insurance broker should be happy to answer any questions you have about your coverage, after all we don’t want our customers to be disappointed in the product we are selling, especially during a high stress situation where property damage is involved.
Time to make a claim
So you’ve learned what’s covered, you’ve figured out your total cost of making a claim, and all signs point to “make that claim” – now what?
The first step is to contact your insurance broker, they will take some very basic information about your loss, and pass it on to your insurance company. Once that is done, a claims representative from your insurance company, called an adjuster, will get in touch, and make an appointment with you to discuss your loss.
The information you’ll need to provide your broker with are things like, what happened, when did the loss occur, how can the adjuster best contact you. Keep in mind that following a loss it’s actually a requirement of your policy that you takes steps to prevent further damage. That might mean boarding up a window, removing property before a sewer back up spreads to certain areas of the basement, or calling a restoration company to help protect your property.
Once you’ve heard from the adjuster, they will most likely book an appointment to view the damaged property and discuss your options with you. If your policy provides replacement cost coverage, the adjuster will likely provide an advance payment to help you start making initial purchases to replace your property. This advance payment is based on the “actual cash value” (think depreciated or market value) of the damaged property. Once the property is replaced, you can submit your receipts and the adjuster will pay the difference between the advanced “actual cash value” and the actual replacement cost amount.
After you’ve met with your adjuster, feel free to go and speak with your broker if you have questions, they can go over your policy coverage, help you find additional coverages that you may not even know you have. For example, did you know that your home insurance likely covers the additional cost of living away from your home, if an insured loss renders your home uninhabitable?
Keep in mind that you will be responsible for a portion of the loss, that amount being your deductible. Your adjuster will discuss with you how the deductible will be accounted for. Usually, the deductible amount is simply deducted from one of the final payments made to you by your insurance company. Generally speaking, you won’t have to pay this amount up front in order to proceed with your claim.
A claim situation is never fun, but understanding your policy, and not being afraid to ask questions can help you get the most out of a bad situation.