Homeowners or renters insurance is meant to cover unexpected damage to your house, apartment or belongings. But making a claim for every little thing that goes wrong will affect your premiums. Learn when to file and when to absorb the loss yourself.

On the surface, the answer to this question should be straightforward. But that’s not necessarily how things work in the insurance universe. There are serious risks to filing certain claims, or to filing too many claims.

What are those risks? There are two primary ones:

  1. Your insurance policy could be canceled
  2. It will be retained, but the premium will rise—often dramatically

When it comes to homeowners and renters insurance, insurance companies generally expect that claims will be filed only occasionally. That means about once every 10 years. If you exceed that, you run the risk of a policy cancelation.

So when should you actually make a homeowners or renters insurance claim?

1. Make a claim when the amount exceeds the deductible

Unless the dollar amount of a claim seriously exceeds the amount of your deductible, don’t even bother filing it. Not only will you not collect any benefits on such a claim, but it will then be noted that you had an event occur, and that may be charged against you. Even though the insurance company hasn’t paid a claim, they may still use it as a basis to increase your premium.

We can take that step farther – don’t file a claim even if it does exceed your deductible, and might result in the receipt of benefits from the insurance company.

Here’s why: Since it’s virtually certain that the claim will result in a higher premium payment going forward, you could actually lose money on the exchange.

Let’s say that your current policy premium is $1,000 per year. You file a claim for $2,000 in damages because it is well above your $1,000 deductible. That means that the insurance company will pay $1,000 for the claim, and you’ll have to cover the balance.

But let’s say that as a result of filing the claim, your premium will increase by $500 per year, up to $1,500, where it will stay for at least the next three years. Even though you will have received a $1,000 benefit payment, it will cost you $1,500 in higher premiums over the next three years. You lose!

2. Avoid too many claims in a few years time

Insurance companies only expect claims on homeowners and renters policies very rarely. That means about one claim every 10 years. If you file two claims within three years, there’s a very good chance that your policy will be canceled entirely. The insurance company will see you as an unacceptable risk.

It gets worse. Any time you have a policy canceled by one insurance company, other companies will be aware of the cancellation, and will be reluctant to provide you with a replacement policy.

This is another reason why you should be hesitant to file a claim that exceeds your deductible: The relatively small benefit you will receive could result in a strike against you. Should you have to file another claim a couple years down the road, it could result in your policy being canceled.

3. Is the damage your fault? Think twice about making a claim

If responsibility for claim can be traced back to you for any reason, the insurance company may not pay the claim, and then cancel your policy.

Homeowners policies in particular require that you provide adequate maintenance to the systems in your home. So if your 20-year-old roof gets destroyed in a major storm, the insurance company may look at the age of the roof and declare that it was not adequately maintained, and even should have been replaced years ago.

The same is true for claims that relate to your behavior. For example, if your house sustains substantial water damage because you left the upstairs bathtub running for several hours, and it overflowed and damaged the house, the insurance company may deem that the disaster was your fault. They may refuse to pay the claim, and if they do, they may cancel your policy afterward.

4. Don’t file a claim for an excluded event

It’s important to realize that homeowners and renters policies don’t cover every threat. Unless an event is specifically listed as a covered threat within your policy, the insurance company can refuse to pay it.

Before filing for any claim, especially one that is no more than a few thousand dollars, carefully examine your insurance policy to make sure that it’s covered. If not, you can put yourself at a disadvantage by letting your insurance company know that it happened – even though the claim will be disallowed.

5. Avoid making suspicious claims

When it comes to cases involving substantial damage to the property, the outcome is usually pretty clear cut. However in other situations, such as theft of personal property, it may not be so obvious.

Avoid filing a claim where you know the circumstances surrounding the event are subject to reasonable debate, and especially where there is a definite lack of evidence or documentation.

For example, if you file a claim for stolen jewelry, but you have no evidence to prove that you ever owned the jewelry, you’ll have a very weak hand in attempting to get a settlement from the insurance company. It would be better if you simply absorb the loss yourself, rather than trying to file a claim.

6. Timing your insurance claim

Fair or not, the insurance industry practice of accepting claims only occasionally is the rule by which we all live. Become a serial claim filer, and you’ll find yourself without any coverage at all.

So what’s the right time to file a claim? It should be only when the loss is clearly covered in your policy, the facts are in your favor, and the loss is substantial.

In that regard, you should think of your homeowners or renters insurance policy as a catastrophic policy only. It’s not there to cover the small stuff (a few thousand dollars or less), but for the truly big disasters that run into the tens of thousands of dollars.

Proceed with that thought in mind, and you should be okay with your homeowners or renters policy. Not to mention, you’ll have a better chance of keeping your policy in force for when a truly big disaster occurs, and you’ll really need the help.

Have you ever been burned during or after filing a claim under your homeowners or renters insurance policy? If you’re looking to purchase either homeowner’s or renter’s insurance, I have two recommendations:

  • Check out Policygenius and complete their short questionnaire. They’ll scour the online marketplace for the best quotes available. You’ll save time with your online shopping, plus you’ll be pretty sure you’ll get the best deal available. Policygenius has both homeowners insurance and renters insurance.
  • Check out Lemonade offering the peer-to-peer (P2P) model of insurance. They take the premiums that you pay and take a flat fee, then pay out claims quickly, and finally give the rest of the money to causes and nonprofits rather than keeping it as their profit which is what most traditional insurance companies do. They have great prices for both renters insurance and homewowners insurance.  I’m a fan.

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About the author

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Since 2009, Kevin Mercadante has been sharing his journey from a washed-up mortgage loan officer emerging from the Financial Meltdown as a contract/self-employed “slash worker” – accountant/blogger/freelance web content writer – on Out of Your Rut.com. He offers career strategies, from dealing with under-employment to transitioning into self-employment, and provides “Alt-retirement strategies” for the vast majority who won’t retire to the beach as millionaires. He also frequently discusses the big-picture trends that are putting the squeeze on the bottom 90%, offering work-arounds and expense cutting tips to help readers carve out more money to save in their budgets – a.k.a., breaking the “savings barrier” and transitioning from debtor to saver. He’s a regular contributor/staff writer for as many as a dozen financial blogs and websites, including Money Under 30, Investor Junkie and The Dough Roller.