Not all losses should be a claim
You’re probably reading this because you recently had some other kind of loss to your home, boat, or business.
And you’re wondering…
- Should I submit a claim to my insurance company or not?
- Will there be any negative consequences?
- Will my price go up? By how much?
- Can my policy be canceled… and what happens then?
Those are very important questions. And while every situation is different, I’d like to provide you some inside information to help guide you. But, admittedly, you can’t get a specific answer to your specific situation in this report.
Why not? Two reasons.
First, there are many factors that determine the true impact of a claim on your policy. For instance…
- Each type of insurance is subject to specific laws and regulations – especially involving cancellation,
- Each insurance company has its own internal rules and practices,
- Your personal claims history and circumstances will trigger those rules and practices differently than, say, your neighbor’s.
Second, once you have the facts and know what the impact will be the decision to submit the claim or not is truly personal. What’s right for your neighbor isn’t necessarily right for you. Given the same facts you each might make a different decision.
The bottom line is this…
If you’re concerned about the potential impact of submitting your claim, contact us and discuss your situation!
We’re here to advise and counsel you… to explain how your insurance really works. We’ll give you the facts BEFORE you submit your claim and help you make the best decision – for you. We also have another helpful post about seven steps to take if you have an insurance claim which you can read here.
Now… here are the more important factors that come into play. But first…
Isn't this what my insurance is for?
Yes… insurance is for paying claims.
You decide the coverage and limits you want. You pay your premium. Your insurance company pays your (covered) claims.
That’s the deal.
Then why all this talk about the “consequences” of claims? Why can claims increase my price or even get my policy canceled? That’s what insurance is for!
That’s absolutely true. It’s just not the whole story.
I don’t want to turn this report into an insurance manual and you don’t want that, either! But this is a common question I get from clients, so I want to explain it to you here… very simply.
Insurance, and the price you pay for it, is based on risk – the risk of a loss occurring. High risk of loss means higher prices are necessary to pay for those increased losses. And low risk of loss means lower prices. Make sense?
Now, what determines the level of risk? Lots of things. But claims experience is one of the most important.
Statistics show that people who have a claim are more likely to have another claim. So, when compared to someone with no past claims, someone with claims on their record represents a higher risk of loss to the insurance company, regardless of the size of the claim.
And you already know what a higher risk of loss means. Yep…higher prices.
Therefore, when you have a claim you now represent higher risk of future loss to your insurance company. And sometimes that increase in risk will be met with an increase in price.
This allows the company to keep prices lower for people who represent lower risk.
It should be noted that some companies do offer ‘free’ claims after you’ve been insured with them a certain number of years (normally 5-10) but these are normally limited only to certain types of claims and is often an extra charge to buy this ‘claim protection’.
The size of your loss
If it’s not obvious, this discussion about whether or not to submit your claim really only comes into play with small losses… losses that come close to your deductible.
Clearly, if you have a $20,000 car wreck… or $50,000 of damage to your home… or $35,000 of inventory stolen from your store, it’s highly unlikely that you would even consider not submitting that claim. That IS what you buy insurance for!
On the other hand, small losses can sometimes hurt worse by submitting them. The consequences of submitting the claim may outweigh the money you receive from the company due to losses of claims-free discounts and even just the fact of having a loss on your file. Insurance companies live on statistics, and statistically if you’ve had multiple small losses your next loss will be a big one — so it might not be a good idea to put in a claim for a smaller loss.
Sometimes it just makes sense to pay your loss yourself and avoid the consequences of submitting a claim.
Your deductible has a direct impact on whether you should submit your claim or not.
A quick review… Your deductible is the amount you pay out-of-pocket toward the amount of your loss. The insurance company then pays the balance.
For example, let’s say you suffer $4,000 of damage to your home under a covered claim. And let’s say your deductible is $1,000. In this case you pay $1,000, and your insurance company pays the remaining $3,000.
Clearly, if the amount of your loss is less than your deductible there’s no point to submitting your claim. You’re going to pay it all anyway, so why report it?
For example, if your deductible is $1,000 and you suffer $800 in damages, then the insurance company isn’t going to pay anything. The amount of damage is less than your deductible. You’re responsible for the first $1,000, so you’re responsible for the full $800 in this case.
But here’s where it gets a little tricky.
What if the loss is just a little bit more than your deductible amount? What if your deductible is $1,500 and the damage is, say, $1,700?
In this case, your damages are only $200 more than your deductible. Therefore, you’ll receive only $200 from the company. Is it worth getting $200 to suffer the consequences of submitting the claim?
It depends. It depends on what those consequences are!
Depending on the type of loss and your personal situation, this claim may cause an increase in your rates, possibly a significant increase. You’ll lose your claims-free discount (if you have one). If you already have a history of claims, it may cause your policy to be non-renewed.
You may find – once you know the exact situation for your personal circumstances – that it’s less costly for you to pay the additional $200 out-of-pocket and keep the claim off your policy.
The point is… unless you know what the impact will truly be you can’t make a good decision. So, if you’re not sure, get the facts.
Did someone get hurt?
Many incidents involve only property damage. For example, maybe the wind blows some shingles off your roof. Or perhaps you back into a pole in a parking lot.
The main thing is that nobody is hurt. There are no injuries.
When your loss is small and involves property damage only, it sometimes makes sense to take care of it yourself and avoid the consequences that come with submitting the claim. You pay for the damage and it’s over.
However, when someone is injured it’s never a good idea to keep that to yourself. Why?
Because no matter how minor the injury may be, the injured party can come back and sue you months or even years later.
If that happens and you didn’t report the claim when it occurred, your insurance company can legally refuse to defend you in the lawsuit and deny any payment, as well.
Your policy requires you to report your claims promptly so the company can control the claim. If you don’t, they can deny coverage. Even if an incident doesn’t trigger a claim right away it’s good to let your insurance company know about it when it happens (even if you don’t think the person is that hurt or they said they wouldn’t sue).
In the case of a small property loss, nobody’s ever going to come back and sue you. But when someone’s injured you never know. Defending yourself in court is expensive – even if you win – so don’t take a risk when someone’s injured. Always report those claims.
Company rules & practices
Regardless of what TV commercials try to tell you, every insurance company is different. They all have their own rules, practices and rate plans. And they all treat claims differently, too.
Some companies have a price for just about everybody — that means that no matter how bad your claims record gets they’ll keep you insured. Of course, your price will go up and up to match your claims experience!
On the other hand, some companies don’t have a price for everyone. When your claims record gets too bad, they’ll decline to renew your policy (within the circumstances allowed by law). When that happens you’ll be forced to get insurance elsewhere, and it’s likely you’ll pay a significantly higher price with a new company .
Canadian insurance laws protect you, the consumer. Among other topics, those laws define the circumstances under which a policy can be canceled or non-renewed. Depending on the type of insurance, these laws can provide you a lot of protection or very little.
For example, personal auto insurance is generally well protected under the law. ICBC can’t cancel or non-renew a policy simply because they don’t want to insure you any longer. The law states the conditions under which cancellation is allowed.
However, other lines of insurance – like business insurance, for example – have fewer such defined cancellation criteria. In many cases, the insurance company can non-renew your policy just because they don’t want to keep your risk on their books.
I can’t emphasize this enough… there are no clear-cut guidelines for making this decision. Provincial laws, company rules and practices, the size of your loss, your deductible and your personal claims history and experience all mix together to create your unique circumstances.
If you’re wondering whether or not it makes sense to submit your claim, give me and my team a call FIRST. Get the facts for your specific situation. And then make an informed decision.