When NOT to File an Insurance Claim

An insurance claim is there to protect you in the event of a loss that you cannot afford related to your home or auto. However, insurance customers often confuse the purpose of an insurance claim and end up misusing it.

As an insurance agent, you can provide value to your existing customers by making sure they know when is the best time to file, and the best time to avoid filing a claim. Here are the points that you should impress on them.

1. The amount of the claim is not enough to cover your deductible.

The absolute worst time to file an insurance claim is when the damage done fails to meet the limit of a deductible. If the customer gets into an accident and that accident totals $750, but their deductible is $1,000, then filing will result in an out-of-pocket expense of $750 with zero insurance benefit. The claim itself could also influence future rates upward.

2. The amount of the claim is barely enough to cover your deductible.

When being advised on the filing of insurance claims, customers are often told to only file when the burdens of the deductible are met. The danger in that is sometimes repairs can run over, but not excessively. If a customer is right up against the borderline, he can think it’s a good idea to file in spite of the fact he would be paying virtually the same out-of-pocket either way to cover the deductible amount. Submitting the claim anyway isn’t the best idea considering it could end up working against the customer’s record with minimal cost savings.

3. The claim type isn’t something covered by your policy.

Again, it cannot be emphasized enough what an active claim record can do to rates. Filing a claim — even one that doesn’t cost the insurance company anything because it’s for something the policy doesn’t cover — makes the customer more of a risk, and those risks must be reflected in future rate hikes.

4. You have filed excessive claims.

Excessive claims can be extremely risky, because there really is no magic number for when an insurance company will choose not to renew a policy. Insurance companies cannot sustain losses for very long, so if your customer’s claims are costing their provider more money than what they are paying in monthly premiums, then they are on the proverbial chopping block.

It’s important to emphasize to clients that they have control over avoiding claims. For starters, an ounce of prevention is worth a pound of cure. Using defensive driving skills, driving the speed limit, obeying traffic laws — all these tips are essential for concerned drivers. Homeowners? Break out the toolkit, and do some basic repairs around the house before turning to a claim.

5. The claim comes as a result of maintenance issues that should have previously been addressed.

Most insurance companies will not cover issues that arise due to customer negligence. When taking ownership of a home or vehicle, one assumes certain responsibilities. Chief among them is the commitment to keep their property properly maintained.

If a car owner, for instance, has an engine breakdown and has to be towed for repairs because they haven’t had an oil change in 10,000 miles on a car that requires every 3,000 to 6,000, then the insurance company is within its rights not to cover the associated costs.

Same with home ownership. Example: if a customer doesn’t keep the termite contract on their home current, and then experience an infestation that causes severe structural damage, they are likely on their own because they neglected basic maintenance and that led to greater damages.

6. You can actually afford the expense.

Going beyond the deductible or just-north-of-deductible scenarios, some customers choose to handle damages themselves if they can afford to do so. If going this route, it’s usually because said customer has an extremely high deductible, probably because they view insurance as a last resort for total loss or near total loss rather than a product to use at will.

Keeping one’s claims record clean will ensure the insurance is there in the event of a catastrophic loss; but it’s an option most insurance customers won’t be able to exercise, especially when getting into storm damage to a home or body damages to a car, which can both run several thousand dollars depending on the extent.

7. Damages are very minor and would not impede safety.

Customers need to call their shots on when to fix damages to their property and when to let them stick. For example, many car owners don’t bother replacing a cracked windshield or a dinged bumper. They forgo it because most of the time neither of these damages are serious enough to impede the safety of the car, and the cosmetics aren’t overwhelmingly noticeable.

If one can’t afford their deductible, wishes to keep a clean claim record, and/or doesn’t have the money to get repairs on their own, then it can be better to just get to it when you get to it.

Reminder: it’s all about risk.

Claims are the insurance company’s responsibility to their customers; however, when fulfilling that responsibility, they have to balance risks, not just for their own well-being, but for those of their other customers. The more claims they receive, the greater their costs; and the greater their costs, the greater their customers’ costs.

Risk management demands that they mitigate their losses, and the first customers they are going to look to in order to do so are the ones consuming more than they are contributing.

Similarly, customers have to play the risk game when looking at claims-worthy incidents. Yes, insurance is there to pay those claims, but it’s also there to cover worst-case scenarios. By submitting excessive claims, a customer is taking a risk that a door ding every few months is all they will ever experience; that they’ll never know what it’s like to total their car on a busy freeway.

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