When you suffer property damage (an “occurrence” in insurance jargon), whether to your house, car, or other property, a familiar bit of folk wisdom might come to mind: Don’t file a claim with your insurance company because they will raise your rates. Just how true is this?
When to File an Insurance Claim
First and foremost, if anyone is injured in any way—no matter how slight the injury—you should always file a claim. Whatever the context of your occurrence (house, car, boat, etc.), this rule applies across the board. But even if no one is injured, you should probably still file a claim because most insurance policies will require you to file for any occurrence that could “lead to,” “give rise to,” or “result in” a claim or from which a claim “may arise,” for example. Moreover, if at first you avoid filing a claim but later decide to file one, your insurance company might cancel your policy altogether for your failure to give timely notice of the claim.
Before continuing, let’s step back and acknowledge the purpose of insurance, which is to protect consumers from major financial disaster, not from minor financial inconvenience. The purpose of insurance makes sense when we recall the rule above—always file a claim if someone is injured—given how quickly medical expenses can add up.
With this in mind, brace yourself for a sour truth: your rates will go up if and when you file a claim.[1] Indeed, a single car insurance claim boosts premiums by a nationwide average of 41%.[2] In states like Massachusetts, California and New Jersey, filing a claim can result in a premium boost as high as 76%.[3] What’s more, a simple call to your insurance company to discuss your options after something happens (an “inquiry”) will increase your risk profile and, even if you never end up filing a claim, having an inquiry on your record can prompt your insurance company to raise your rates.[4]
Now you know. But before you resolve to never file a claim again, keep in mind that if the thought of filing a claim has crossed your mind, then your insurance policy probably requires you to do so. Remember that if at first you don’t file a claim but later decide to, you could end up regretting it because your insurance company may decide to cancel coverage, leaving you completely exposed.
All that said, when the time comes for you to decide whether to file a claim, keep in mind that the purpose of insurance is not to spare you some minor financial inconvenience. Instead, think of insurance as asset that helps protect you from financial ruin. If no one has been physically injured, figure out what the cost of repair is relative to your deductible (i.e., is it below or not much greater than your deductible?) and determine whether you can afford to pay it out of pocket.
[1] David Shaffer, United Policyholders, To Claim or Not to Claim…That is the Question, http://www.uphelp.org/pubs/claim-or-not-claim%E2%80%A6that-question-david-shaffer (2016); Quoted, Insurance Zebra, Inc., 3 Times You Shouldn’t File a Car Insurance Claim, https://www.thezebra.com/insurance-news/606/car-insurance-claim/ (Nov. 13, 2014); see also McClain Insurance, Read This Before You File a Claim, http://www.autohomeboat.com/client-service/claims/read-this-before-you-file-a-claim (last visited Aug. 17, 2016).
[2] Kate Ashford, Time, When It Makes Financial Sense to File an Auto Insurance Claim—and When It Doesn’t, http://time.com/money/3712220/should-i-file-an-auto-insurance-claim/ (Feb. 18, 2015).
[3] Id.
[4] Id.
Max Julian is a partner at Gertsburg Licata in the litigation practice group. He may be reached at (216) 573-6000 or at [email protected].
Gertsburg Licata is a full-service, strategic growth advisory firm focusing on business transactions and litigation, M&A and executive talent solutions for start-up and middle-market enterprises. It is also the home of CoverMySix®, a unique, anti-litigation audit developed specifically for growing and middle-market companies.
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction. If you have specific questions about your matter, please contact an attorney licensed to practice in your jurisdiction.
