Home insurance is a vital part of homeownership. It’s designed to protect you and your property in the event of a disaster. When you file a home insurance claim, your insurance company assesses the damage and typically reimburses you for things like repairs to your home and the replacement of damaged personal belongings.
It’s important to understand the home insurance claim impact on premium costs and how they can affect your wallet. Does your home insurance premium increase after a claim, and if so, how much could it potentially increase? This guide has information to help you navigate the claims process and how it might affect you.
Understanding home insurance premiums
The term “home insurance premium” (or rate) refers to the amount of money you pay to your insurance company for active coverage. These premiums are typically part of your loan escrow cost if you still have a mortgage. Most home insurance premiums are paid monthly or annually, while some may renew every six months. You can pay your premium separately outside of escrow if you choose, but you’ll most likely need to show your mortgage company the proof of active home insurance coverage in this case.
How home insurance premiums are calculated
Several factors affect how much your home insurance premiums cost, including:
- The age of your home
- How large your home is (square footage, number of bedrooms)
- Your personal credit score and credit history
- The location of the home and whether it’s in a disaster-prone area
- Whether or not your home has a security system
- The construction materials used to build the home, including the roof
It’s important to understand how filing an insurance claim could affect your total premium costs. The amount of the increase depends on several things, which are covered in more detail below.
The concept of home insurance claims
According to data from the Insurance Information Institute, approximately one in every 20 insured homes has a claim each year. These claims are filed if a homeowner experiences serious damage to their property as a result of various disasters or known perils. When a claim is filed, the insurance company sends an adjuster to the property to assess and evaluate the damage. This information is relayed back to the insurance company, which then determines how much money the homeowner will receive as reimbursement.
When you might need to file a claim
There are many reasons why you may need to contact your home insurance company to file a claim. Some common examples include:
- A house fire
- Roof or structural damage due to wind, hail, or heavy snowfall
- Water damage due to plumbing or appliance leaks/frozen pipes
- Theft or vandalism
- Lighting strikes
- Property damage and/or bodily injury
The process of filing a home insurance claim
If you need to file a home insurance claim, there are certain steps you need to follow to ensure it’s processed in a timely manner.
- File a police report if any incidences of theft or vandalism are involved.
- Take photos and videos to clearly document any and all damage that you see.
- Call your insurance company and tell them you need to file a claim and why.
- Make urgent repairs that could prevent further damage to your home.
- Wait for the insurance adjuster to come to your home and assess the damage.
- Stay in close contact with your insurance representative throughout the claims process.
Impact of home insurance claims on future premiums
When you file a home insurance claim, what impact does it have on premium costs moving forward? The increase depends on several factors, like the type of claim you file, the extent or severity of the damage, your location, and if you have a personal claims history. Your premiums could also increase depending on the frequency of claims in your area.
Making a claim could impact your future premiums because some insurance companies believe you’re more likely to file another one in the future. This is especially true for water damage, theft, and dog bites. Why does the insurance company raise your premium after these claims? In most cases, it’s to compensate for the potential claim payout you may get in the future if you file another one.
There are other reasons why your premiums might increase after filing a claim. If you live in an area with frequent storms and other types of severe weather (like wildfires) or you’re in a high-crime area, the insurance company may increase the premium. If you’ve filed a liability claim in the past, this could also affect your new premium cost. If you’ve filed more than one claim over a period of several years, or if you own a home with a prior history of claims, then your premium may increase.
Some insurance companies offer a “claims-free discount,” which means your premiums stay lower when you don’t make any claims. These discounts can potentially end once you file a claim, causing you to lose out on the savings. However, some insurers may reinstate the discount after you go through a certain period of time without any new claims.
There are times when your future insurance premium may increase due to things that are out of your control. For example, if your community is hit by a major hurricane and many homeowners file a claim, your rate may increase. Theft, fire, and liability claims tend to raise premiums more than some other types of claims, like mild water damage or roof issues due to high winds.
The reality: does your home insurance premium increase after a claim?
Does a home insurance premium increase after a claim? The answer depends on your specific circumstances and insurance company. For example, weather-related claims typically don’t increase premiums as much as claims relating to theft, liability, or vandalism. Some states have some protections in place that limit when insurers can increase premiums and cancel policies and how much they’re allowed to raise premiums (also called a “cap”).
In most cases, you can expect an increase of around 7% to 10% for a first claim, according to licensed property and casualty expert Fabio Faschi. As the number of claims rises above zero, the premiums increase even more. For example, a policy in the United States with no claims may cost approximately $1,933 per year on average, but a policy with five claims can increase costs to a whopping $4,407 per year on average. Fortunately, there are some things you can do to help reduce the impact of any claims you file on your future home insurance premiums.
How to mitigate the impact of claims on future premiums
It’s important to note that there are times when your insurance company can’t increase your premium. Insurers are regulated at the state level, so consumer protection laws vary, but the insurer can’t raise your premium if you simply inquire about a claim without filing one. If you don’t receive a payout or your claim is denied, then your premiums can’t increase. If you simply filed a single claim or filed one because of a natural disaster, the insurance company can’t raise your rates.
How to prevent unnecessary claims
There are a few things you can do to maintain a low-risk profile to help you avoid premium increases. Here are some suggestions to help you prevent filing a claim unnecessarily:
- Consider getting a home warranty plan to protect your appliances and other major systems. This policy is separate from home insurance and won’t affect your premiums if you file a claim.
- Install motion lights and security cameras to help prevent theft or vandalism. This may also result in a premium discount.
- Make sure your roof, foundation, and other major components are in good condition to prevent storm damage.
- Update old wire or heating systems to reduce the risk of fire.
- Homes with swimming pools cost more to insure, so consider purchasing a home without a pool to keep premiums lower.
- Improve and maintain a high credit score to help you pay less for home insurance coverage.
- Practice regular preventative maintenance, like installing high-tech smoke and carbon monoxide detectors and having your roof inspected regularly.
- If your home has an old roof, replacing it may also result in a lower insurance premium.
- If you live in a high-risk area, consider installing new hurricane windows and practicing good wildfire damage prevention.
Taking some preventative measures and doing regular home maintenance tasks can reduce the need to file a claim. As a result, you may be able to keep your premiums lower.
Once you know how filing a claim can affect your home insurance premiums, you’ll be better prepared to deal with whatever comes your way. Remember the factors that impact future premiums and take simple steps to help you mitigate risk and protect your home. Always read your insurance policy carefully and ask questions so you can make an informed decision whenever you do need to file a claim.