Whether your home’s sprung a leak or a rock’s chipped your windshield, you may be thinking twice about making a claim on your insurance policy. The anecdotal evidence suggests that any claim, no matter how small, will increase your policy premium. Yet filing an insurance claim doesn't always translate to paying more. Insurance companies consider many factors before deciding whether to increase your monthly rate.
What Research Says
A study commissioned by Insurance Quotes based on 2010 home insurance data examined the financial impact of a homeowner filing a single claim against his homeowners insurance policy. The results were surprisingly diverse. Homeowners in Minnesota can expect a 21 percent rise in the premium after making a single claim. Texans on the other hand, pay no increase at all. The study reports a 9 percent average increase across all 50 states.
Long Arm of the Law
State regulation hugely impacts the consequences of making a claim. Texas prohibits insurance companies from increasing premiums after a first-time claim, which may explain why Texas homeowners suffered zero premium increase in the Insurance Quote study. In the context of car insurance, insurers in no-fault states are legally required to pay some portion of a claim, no matter who caused the accident. In these states, it's likely that your insurance rate will go up, no matter who’s to blame.
Hand of God
In matters of insurance, each state has different risk factors to consider. For instance, a home insurer in Oklahoma will likely consider the tornado risk, whereas hurricanes will influence insurance decisions in Florida. The prevalence of natural disasters -- factors outside of your control -- plays a part. In 1998, Minnesota’s insurers suffered $1.5 billion in storm losses -- more than the previous 40 years combined. As Minnesota insurance law bars insurance companies from canceling a policy after one weather-related claim, the only recourse insurers had was to raise policy renewal prices for customers with a claims history.
Your Behavior Matters
If your claims record is poor and you’re to blame for the incident, you can bank on your premium going up. Blame has a pretty wide meaning in the insurance world. If you haven’t kept up on essential home repairs, such as replacing missing roof tiles, your insurer will hold you culpable for the resulting rain damage. Conversely, if you’re a proven safe bet -- no previous major claims, no driving tickets, a beautifully maintained and secure home -- your insurer probably will not penalize you for a single incident of bad luck.
Today’s insurance companies are competing for your business. In other words, there are deals to be had. Many car insurers, for example, offer "accident forgiveness" for small claims. These clauses guarantee that one or more small claims won’t affect your policy premium. Insurance companies have different terms and conditions, so, as always, read the small print before you buy. Some insurers insist that you go accident-free for a number of years before you qualify.
Jayne Thompson earned an LLB in Law and Business Administration from the University of Birmingham and an LLM in International Law from the University of East London. She practiced in various “big law” firms before launching a career as a commercial writer. Her work has appeared on numerous financial blogs including Wealth Soup and Synchrony. Find her at www.whiterosecopywriting.com.