— -- One of the main reasons for having insurance is to offset risk, especially major risks and losses. We pay many insurance premiums throughout our lives to various carriers for a multitude of different risks. When a possible claim occurs, an initial thought might be “I am finally cashing in on some of those premiums!”
You might want to think twice before filing that claim, though.
Not only do you want to consider strategizing before filing your possible claim, you might want to hold off on even calling your insurance company. The premiums paid in our lifetimes reflect an amortization of the possibility of the risk occurring. The greater the risk, the greater the premium. If you are a constant “claimer,” your premiums will reflect this. So it all comes down to whether it’s worth it to file a claim in the long run. Take time to consider your options.
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Do You Have a CLUE?
Various carriers have been known to treat calls as a claim without the insured’s knowledge. Comprehensive Loss Underwriting Exchange, CLUE, is a database that keeps records of claims. LexisNexis offers a handy service that allows easy research of five years of claims data. It can be an informative service to a homebuyer, but it’s not a database you want to land on accidentally by making an inquisitive phone call.
The easiest defense against this problem is to know your coverages and your deductible amounts. With the knowledge of what your insurance covers (i.e. ring, roof or fender) and the amount you can be better armed with the power to make your own decisions and not put yourself in a possible accidental or unworthy claim.
Speaking of deductibles, if at all possible, carrying a high deductible will likely save you money over the long term. Most insurances can be looked at as a defense for a major event. Not reaching to your insurance to cover minor or lower-cost repairs or replacements can be a good defense against higher long-term premiums. If you are a claimer with lower deductibles, you’re more likely to have higher than necessary premiums in your lifetime.
One important planning tip is that it is critical to have adequate emergency funds available to cover all of your deductibles.
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Some Examples of NOT Filing a Claim
The easiest example is a car accident that is just barely over your deductible. It is likely that a $1,500 or even $2,000 claim against a deductible of $1,000, through eventual higher insurance premiums, may quickly turn your claim into a negative financial transaction over the longer period of time. Thinking of your premiums again as an amortization of your claims can help you determine if you should file a claim or not.
Filing a claim against an asset that has been depreciated in coverage to a small dollar amount may not only hit your CLUE report, but could also result in higher immediate premiums -- plus put you on the list for being dropped should you have several other claims in a short period of time. If you are dropped by a carrier, your new carrier with this knowledge may adjust your new premiums accordingly, as a higher risk. Some carriers may not even offer coverage to someone who has been dropped.
Say you accidentally lost a cherished ring. Your deductible is $1,000 and you think the ring is worth $3,000 but you have not had it appraised, did not itemize it on your policy and have no way of proving the value. It is highly likely you will get little, if any, by claiming this loss -- and your file will be marked with a claim.
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So When Should You File a Claim?
There are absolutely times when it’s advisable to file an insurance claim. For example, automobile accidents that involve an injury, personal liability or severe damage to another vehicle, even if your car was not harmed, are cause to pick up the phone and bring your insurance company up to speed with the situation. Tell your story first, directly to your carrier, in order to protect yourself and arm your carrier with as much information to help defend in the situation.
Catastrophic damage to your asset is clearly cause for notification and in most cases, the sooner the better. Major geographic damage often causes a large backlog of claims all at once, making it better to be at the front of the line.
Lastly, another money saving tip: if you decide to pay out of your pocket for your repair or replacement, be sure to let the service company know this. There are often different prices for insurance-related and out of pocket services.
Any opinions expressed in this column are solely those of the author.