You purchase home insurance to protect yourself if something major goes wrong such as a pipe that bursts, there is a fire, or some other peril. In fact, most mortgage companies require you to have homeowner’s insurance if you have a mortgage on your house to protect their stake in your home as well. However, insurance companies are not in business to pay out too many claims. They would quickly find themselves out of business if they did that, and they take a negative view on customers filing too many claims in a short period of time as well. This is considered a red flag, and you can quickly find your insurance premiums going up or worse.
What Is Considered Too Much
What is considered too many claims varies from insurance company to insurance company, but if you are filing multiple claims in a one year period, you better believe that your insurance company is raising a red flag. Insurance companies keep records over a three to five year period on the number of claims filed per policy, and they report claims that you file to your CLUE report which is a national information clearinghouse of your property insurance activity and claims. Insurance Companies use the data to help them price your insurance policy premiums.
Insurance is designed for disasters that would bring financial ruin to you, and it is not every day repairs. If a person is trying to submit claims for minor repairs, the insurance company is going to take action to ensure that they are staying profitable on the policy.
What the Insurance Company May Do
If an insurance company notices a lot of claims coming from one individual in a short period of time, the first action an insurance company will usually take is to raise the premiums paid for the policy. The company may also raise the deductible on the policy to encourage individuals to pay out of pocket instead of using the insurance policy. You can see this happening when it is time to renew your policy, typically every six months.
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In some instances, individuals may find that the insurance company will simply cancel their policy. There are three main ways this occurs:
- Cancellation: when the insurance company cancels a policy that is currently in effect
- Recission: when your insurance policy is not only canceled, but voided all together (this happens if the insurance company thinks there was fraud)
- Non-Renewal: when the insurance company declines to renew your policy
What Recourse Do You Have?
If you insurance company does cancel your policy, you can check with your state insurance regulator to make sure the grounds for cancellation were legal. Many companies are not allowed to cancel a policy in effect for too many claims, but they can choose not to renew it though. Since many insurance companies use the same data and history of your claims, excessive claims could impact your ability to get future policies as well.