Insurance is a funny concept. It’s one of those things that you pay for in the hopes that you never have to use it. But then when you have to use it, you might be better off not making a claim depending on the specifics.
Home insurance claims are often denied due to lack of coverage of the item being claimed or coverage that is too low to pay for the entire claim amount. A mistake or untruth that is discovered is another common reason for denial.
While there are many reasons why home insurance claims are denied, there are also some reasons why you may want to avoid making a claim and why paying for the damage yourself might save you in the long run.
Reasons why home insurance claims are denied
Research I did showed that home insurance claim rejections appear to fall between about 20%
and 30% of all claims made.
Most commonly the reasons why home insurance claims are denied are due to at least several things that may be avoided:
- No coverage for the claim in question. The specific incident was simply not covered by the policy.
- The incident was covered by insurance but the specifics regarding the claim weren’t covered. In this case the damage was covered by perhaps the way the damage occurred was not.
- Not paying your insurance premiums on time.
- Not enough coverage to cover the entire amount of the claim.
- The damage was caused by wear and tear (and thus not covered).
- The damage was caused by the behavior of the claimant (and thus not covered).
- The required proof wasn’t provided (not common for home insurance claims).
- The claim was filed too late and missed the time limit (not common).
While required proof and missing the time limit reasons do happen they are generally not common and can typically be avoided with some planning on the policy holder’s part.
While insurance claims can be approved or denied, there is one additional potential result: The claim is withdrawn by the policy holder making the claim.
Why would they do that?
Reasons why home insurance claims are withdrawn
Research shows that in a minority of insurance claims, the person making the claim changes their mind before a decision is made and voluntarily withdraws their claim. Most commonly you might consider withdrawing your claim upon further review because you:
- Are afraid your insurance premiums will go up if the claim is successful which they probably will.
- The claim fell below the deductible and you realized it was a mistake to file in the first place.
- You felt that the potential payoff from the claim wasn’t big enough to follow the claim through.
- The amount of information required either wasn’t available or was too bothersome to complete.
- You realized the claim likely wouldn’t be covered by your policy.
When to avoid making a homeowners insurance claim
Important to remember is that every time you make an insurance claim even when you’re not at fault, you cost an insurance company money. They make money by receiving premiums and not paying claims. The more claims you make the less desirable you are as a customer. It’s that simple.
Here are some guidelines that are generally worth following to determine whether or not filing a claim is worth it.
The claim is less than your deductible
The deductible is the amount of money that you have to cover on a claim before it will be paid. So if your claim is $200 but your deductible is higher than that, you shouldn’t even bother making the claim because your deductible covers it. Your insurer has nothing to pay you.
If the claim is less than 20% more than your deductible
If the claim you’re making isn’t at least 20% higher than your deductible then it’s probably not worth making the claim. Certainly not when you compare it to the rise in insurance premiums that you will most likely immediately face which could be as high as 20% alone. So if your deductible is $1,000 your minimum claim should be at least $1,200 or it’s not worth it.
You made another claim recently
While making 2 claims within 10 years (for example) is usually considered reasonable, if you’re making a subsequent claim or are making a claim shortly after making another successful claim, you may be flagged by your insurer as high risk. This means your premiums may not only go up but you may be at risk of having your policy canceled.
Your claim is more of a home improvement project
If you have a fence that is damaged and needs replacing, it’s possible it’ll be treated as wear and tear and won’t be covered anyways. The insurer might additionally conclude that you didn’t properly maintain the fence and that the damage was essentially due to your negligence.
You’re not covered for the claim
In other words you don’t know your policy. Everything is kept on computer and retained on file these days so even when you make a claim and it is rejected, it may stay on your file for several years.
You don’t need the money
Think of your home owner’s insurance policy as one that protects you against the absolute worst and most costly claims. Can you afford to not make a claim and pay for the damage to be fixed yourself? If so, you may save yourself money down the line by avoiding a claim on your record and the resulting increase in your premium which lasts for years.
Your insurance broker tells you not to
If your insurance broker advises against making the claim it might be in your best interest to take their advice. Experienced agents have seen it all and have the knowledge to help you. Call them first before you contact your insurer because once you speak with your insurance company, it’s likely they’ll document the call and start the claims process.
It was avoidable
If you were careless or otherwise negligent which directly led to the problem, you might want to weigh the pros and cons of making a claim before doing so.
Remember: you get the claim paid once but the increase in premium gets paid by you every year. Make sure the claim is worth it.
If in doubt contact your insurance broker and ask their advice. Any experienced agent should be able to give you some advice regarding your situation given the specifics and given your chosen insurance provider. Some insurers deny more claims than others.
What to do if your homeowners insurance claim is denied
It depends on why your claim was rejected. We already discussed common reasons for rejection of a claim but how can your insurer respond when they choose to reject you?
Mostly, the responses aren’t good for you:
- They may question your judgment especially if the claim shouldn’t have been made in the first place and you wasted their time.
- They may believe it’s a fraudulent claim which if it is, could cause you legal trouble.
- If the claim was due to your negligence or lack of maintenance, it could have a negative impact on your ability to keep the insurance policy in place if they deem you a risk.
If you still feel you have a legitimate claim, speak with your broker to learn about the appeal process if any and collect any additional information that could help you cause. You will have to personally approach your insurer directly to actually appeal the rejection if you choose to. They will also instruct you on the appeal process which typically means your file will be reviewed by a more senior adjuster.
Read your policy when it is renewed especially when it contains changes
It pays to constantly understand your coverage especially when it changes. In the past 2 years, one of my home insurance policies highlighted 17 (this year) and 8 (last year) most significant changes (their words) to the policy.
Of the 25 most significant changes during this two year period:
- 14 changes were policy clarifications where coverage was restated or elaborated upon.
- 6 changes added new or additional aspects of coverage to existing clauses.
- 5 changes amended definitions of coverage to generally add specific coverage.
Important to note that while some policy coverages were added to, the policy clarification changes often tightened up coverage to make potential claims more specific and perhaps more difficult to make. This is important to note each time you receive updated coverage from your insurer.
As mentioned above the main reason for a claim denial is that the specific incident the person made the claim for simply wasn’t covered.
Final thoughts on home insurance coverage
Some home insurance providers offer a paid service that enables you to have one “free” claim during a period of time perhaps yearly or every few years. You do pay extra for the service so it’s not free per se but is a consideration to think about.
Most common home insurance claims
- Wind damage
- Non-weather water damage
- Hail
- Weather-related water damage
- Theft
Costly home insurance claims
The most costly home insurance claims include:
- Water damage and floods
- Hail
- Wind damage
- Liability
- Fire
- Theft
- Dog bites which may also be considered a liability insurance issue
Check out the links to learn about how you can make your home safer and potentially reduce the chance of having to make an insurance claim in the future.
Catastrophic insurance coverage
Some claims that are considered to be due to catastrophic events may not be covered by your policy. Check your existing policy to see if you have coverage for the following:
- Floods
- Tornadoes
- Hurricanes
- Earthquakes
- Volcanoes
- Tsunamis
- Brush fires
- Mudslides
- Landslides
- Sinkholes
- Sewer back ups
- Riots
- Terrorist attacks
Many insurers may not cover certain “catastrophic events” or “acts of God” or may required extra coverage. You may also be denied coverage depending on where you live ie. flood zone, wildfire zone, etc.
Summary
An insurance claim can stay on your record for 5 – 7 years and will follow you to your next insurer due to claims information being kept in a central database called the Comprehensive Loss Underwriting Exchange (CLUE) and A-PLUS (Automated Property Loss Underwriting System). Before making a claim, make sure it makes sense to do so and ask your broker for advice.
Click here to view very detailed research on insurance claims that were approved, rejected or withdrawn to learn more about the experiences of people who have gone through the claims process.