What Is an Insurance Claim?
An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, once approved, issues payment to the insured or an approved interested party on behalf of the insured.
How an Insurance Claim Works
A paid insurance claim serves to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for completion of an insurance contract between the insured party and an insurance carrier. The most common insurance claims involve costs for medical goods and services, physical damage and liability resulting from the operation of automobiles, property damage and liability for dwellings (homeowners, landlords, and renters), and the loss of life.
For property and causality insurance policies, regardless of the scope of an accident or who was at fault, the number of insurance claims you file has a direct impact on your rates. The greater the number of claims filed, the greater the likelihood of a rate hike. File too many claims and the insurance company may not renew your policy.
If the claim is being filed based on the damage you caused, your rates will almost surely rise. On the other hand, if you aren't at fault, your rates may or may not increase. Getting hit from behind when your car is parked or having siding blow off your house during a storm are clearly not your fault and may not result in rate hikes, but this isn't always the case. Mitigating circumstances, such as the number of previous claims you have filed, the number of speeding tickets you have received, the frequency of natural disasters in your area (earthquakes, hurricanes, floods) and even a low credit rating can all cause your rates to go up, even if the latest claim was made for damage you didn't cause.
When it comes to rate hikes, not all claims are created equal. Dog bites, slip-and-fall personal injury claims, water damage, and mold are red flag items to insurers. These items tend to have a negative impact on your rates and on your insurer's willingness to continue providing coverage. Surprisingly, the much-dreaded speeding ticket may not cause a rate hike at all. Many companies forgive the first ticket. The same goes for a minor automobile accident or a small claim against your homeowner's insurance policy.
Property and Casualty Claims
A house is typically one of the largest assets an individual will purchase in his/her lifetime. A claim filed for damage from covered perils is initially routed via phone or the internet to a representative of an insurer, commonly referred to as broker or claims adjuster.
Unlike health insurance claims, the onus is on the policyholder to report damage of a deeded property he owns. An adjuster, depending on the type of claim, inspects and assesses damage to property for payment to the insured. Upon verification of the damage, the adjuster initiates the process of compensating or reimbursing the insured.
To File or Not to File an Insurance Claim?
There are no hard-and-fast rules around rate hikes. What one company forgives, another won't forget. Because any claim at all may pose a risk to your rates, understanding your policy is the first step toward protecting your wallet. If you know your first accident is forgiven or a previously filed claim won't count against you after a certain number of years, the decision of whether or not to file a claim can be made with advance knowledge of the impact it will or won't have on your rates.
Talking to your broker about the insurance company's policies long before you need to file a claim is also important. Some brokers are obligated to report you to the company if you even discuss a potential claim and choose not to file. For this reason, you also don't want to wait until you need to file a claim to inquire about your insurer's policy regarding consultation with your broker.
Regardless of your situation, minimizing the number of claims you file is the key to protecting your insurance rates from a substantial increase. A good rule to follow is to only file a claim in the event of catastrophic loss. If your car gets a dent on the bumper or a few shingles blow off of the roof on your house, you may be better off if you take care of the expense on your own.
If your car is totaled in an accident or your house caves in, filing a claim becomes a more economically feasible exercise. Just keep in mind that even though you have coverage and have paid your premiums on time for years, your insurance company can still decline to renew your coverage when your policy expires.