Do Claims Increase My Insurance Payments?
No one insurance agent can say exactly how a claim will impact insurance payments. However, I can help you make a more informed decision by providing some insight into how insurance companies think.
Before we dig into how insurance companies think, let’s look at how insurance works. As mentioned in our medical bill sharing blog, when insurance customers make monthly premium payments to an insurance company, a portion of these payments are put into an account. The insurance company will then withdrawal from this account to pay claims. As a result, insurance companies determine how much to charge per month based on how likely a customer is to make them pay a claim.
Now that we’ve covered some background on how insurance companies work, let’s dive into some of the facts behind how they think:
FACT 1 — Not All Claims Are Equal
There is no set monetary increase associated with a claim type or amount. Rather than a dollar amount, all insurance companies work from percentages.
FACT 2 — Claim Amount Isn’t As Critical
Contrary to popular belief, the amount of money spent on a claim does not directly impact a renewal premium. For example, if one customer has a $50,000 water claim and another customer has a $5,000 water claim, they are still likely to get a similar percentage increase on their premium payments. Why? Because the dollar amount on one particular claim does not necessarily mean the incident will happen again.
PRO TIP — Prior to filing a claim, call your independent insurance agent to discuss your policy. For example, if you’re thinking of filing a claim for an $1100 issue, but your deductible is $1000, it’s often better to avoid the claim and instead, pay the $1100 out-of-pocket. Filing the claim would still require you to pay $1000 before the insurance company pays the remaining $100, and as we discuss later, claim history is noteworthy.
FACT 3 — Type of Claim Is Important
Weather claims, such as wind damage, are not frequent and are out of the customer’s control. Theft claims, however, typically happen often or in a pattern, and can be reduced by taking specific precautions. As a result, a $2000 theft claim will likely impact insurance more than a $10,000 wind claim.
PRO TIP — Some insurance companies won’t offer coverage to people with a history of certain claims. If you have a history of theft claims, getting insurance with the best companies will be difficult. Again, talk to your independent agent prior to filing a claim. Your agent can also give you tips to help prevent theft.
FACT 4 — Frequency of Claims Is Significant
The more claims filed, the more money the insurance company has to pay on a customer’s behalf. Additionally, when specific claims are filed frequently, a negative history is built. If a claim happens once — no problem. If the same claim happens two or three times, it shows a customer may not have the ability to prevent the claim from happening again, thus creating a negative impression with the insurance company, and making it more difficult to receive coverage.
Claims do impact how much you pay for insurance, but not in the way you may think. The type of claim and the frequency of claims is more impactful than the amount of the claim.
This content was originally posted at http://moneywellrooted.com/2017/06/20/do-claims-increase-my-insurance-payments.