What Is Home Insurance?
In most cases, when you use financing to purchase a new home you will need to purchase home insurance (also known as homeowners insurance) before the transaction closing date. Home insurance covers the lender’s investment as well as your own in the case of things like disaster, damage, fire, vandalism, theft, and more, depending on your policy. It is also designed to cover your liability for any accidents that occur on your property. (To learn more about what home insurance in Oregon does and does not cover, visit the Oregon Division of Financial Regulation website section on Home Insurance.)
Purchasing home insurance through an agent you know, like, and trust can not only help you get the best rates but also means you have someone to discuss potential claims with if and when something does happen to damage your home or injure someone on your property. Another benefit of working with an agent is that most of them will take the time to educate their clients about how to keep their home from having a loss, to begin with. The Insurance Institute for Business & Home Safety is a great online resource for this type of information as well.
How to File a Home Insurance Claim
We recommend getting up to 3 estimates to see how much the repair will cost and then we consider the deductible and the impact on premium– Debbie Clinton, Farmers Insurance
When damage or an accident occurs in your home or on your property and the cost to mitigate the damage is beyond your financial means, you may need to file a home insurance claim.
To begin the claim process:
- Contact your agent. (Document all conversations.)
- If there has been a theft or vandalism, always notify the local police and file a police report.
- Protect your property from further damage. If need be, make reasonable repairs so that the damage does not get worse. (Keep all of your receipts and do not make permanent fixes until the insurance adjuster has documented the extent of the damage.)
- Provide a detailed inventory to the claims adjuster showing the damaged property and the amount of loss claimed – this will help expedite payment.
It’s a good idea to already have a list or inventory of your possessions to submit to your home insurance agent (logged with item numbers, serial numbers, and purchase price – receipts can help immensely in these cases as well). Waiting until the disaster or theft has already occurred to try to inventory your possessions will only add stress to the situation and it will make it harder for you to present a strong case for reimbursement. Using an app is a quick and easy way to take photos of your possessions and log the information in a manageable format. Try Sortly or Memento Database.
Debbie at Farmer’s says, “We recommend getting up to 3 estimates to see how much the repair will cost and then we consider the deductible and the impact on the premium. If it isn’t clear whether the damage is a covered peril or not, we highly recommend filing a claim to let the adjuster do a full investigation of the cause of loss.”
When Not to File a Claim
If the cost to repair the damage is less than or only slightly more than your deductible, it may make more sense to pay out of pocket for repairs or make the repairs yourself.
Having home insurance doesn’t necessarily mean you should file a claim every time something is damaged or even for a theft. While this may seem counterintuitive, it’s important to understand that insurance companies are legally allowed to raise your premiums even after a single claim, regardless of the cost of that claim. A 2014 report by CNN found that monthly home insurance premiums increase by about 9% after a single claim of any kind. Liability claims such as a personal injury claim are the most expensive, incurring an approximately 14% increase.
Claims for things like theft or vandalism also tend to lead to a costly increase in premiums. Frequent claims for these issues indicate a dangerous neighborhood and are a red flag to your insurance carrier.
Given that the average homeowner files a claim about once every ten years, home insurance companies will also raise a consumers rates if a second claim is filed on a home insurance policy within a period of time less than that ten-year benchmark – and second claims can send premiums skyrocketing an average of 20%.
All insurance companies report to a database called the Comprehensive Loss Underwriting Exchange, or CLUE, which tracks property and auto insurance claims for each consumer. Your insurance record is updated each time you make a home insurance claim, even if the claim is denied and even if there is no payout. This data is then used to determine coverage availability and how much to charge – so switching insurance companies won’t necessarily get you better rates once a claim has been filed. (Note: you can get a copy of your C.L.U.E report from LexisNexis Personal Reports by requesting it online or by mail.)
With all of this in mind, if the cost to repair the damage is less than or only slightly more than your deductible, it may make more sense to pay out of pocket for repairs or make the repairs yourself. Save the home insurance claims for the catastrophic losses and extensive damages you simply cannot afford to cover.
My personal home insurance agent, Debbie Clinton at Farmers Insurance, is always available to me to talk through a potential claim without actually filing one.
Recently, when one of the bathrooms flooded in my brand new custom home I was able to call Debbie directly to discuss the damage and strategically decide not to file a claim. Having that conversation, instead of filing the claim just to see if it would be worth it, saved me both time and money. I was able to decide to absorb the out-of-pocket expense and move forward with the necessary repairs to my very soggy bathroom and hallway without adding a flag to my insurance report (which would have increased my premiums.)
Being a homeowner myself, and being in the real estate and mortgage industries, I’m always happy to make recommendations to the folks I know, like, and trust – like Debbie. If you’re looking for recommendations, get in touch – I’m here to help.