Wednesday, 6 Jun 2012

How Claims Affect Insurance Rates

Carrying adequate insurance is important. Without it, you could be in serious financial trouble. There are many types of insurance, among them are health, life, auto, and home, but they all work essentially the same way: you pay a premium and receive economic security in return. One problem with this arrangement, at least as far as most insurance customers are concerned, is that your rates may go up if you need to file a claim. Following are a few tips on how claims affect insurance rates.

It’s a Numbers Game

Although it is generally accepted that filing an insurance claim will automatically make your rates go up, that may not be true. The fact is that filing multiple claims, especially if you do so within a very short period of time, will definitely raise your premiums. If you go for a long time without a claim, and have an accident or get sick and need to file a claim, it may not have any bearing on your insurance rates. However, filing multiple claims will more than likely cause them to go up.

Carrying a High Deductible

One reason that people carry a high deductible is to keep their insurance premiums as low as possible. When you do that, you need to have money on hand to pay the deductible if you want to file a claim, because the insurance company won’t send you a check until the deductible is paid. Another reason for carrying a high deductible is to avoid having to file a claim in the first place. If you have a low deductible, you may be tempted to file a claim even though the amount you need really isn’t all that high. If you do so, you may end up filing claims quite often, even  though the upfront cost is relatively low. In that case, your rates will more than likely go up due to filing multiple claims. You may be better off carrying high deductibles and paying for minor problems yourself to avoid having your rates go up.

You May Face Cancellation

Insurance companies may want you to believe they’re in business to provide you with financial protection. The truth is that they’re in business for one reason and one reason only–to make money. It is the primary motivator for any company. Sure, they provide a service, but that’s really a secondary purpose–an insurance company will penalize any customer that files multiple claims, because that person is costing them money. Carrying this scenario to its ultimate end, an insurance company is likely to cancel your policy, and refuse to issue another policy, if you file one claim too many–because an insurance company intends to make a profit they may attempt to get rid of any customer that files multiple claims and ends up costing the company more than they make from them in monthly premiums.

Pay for Small Claims Yourself

One way to avoid the possibility of having your insurance premiums skyrocket, and maybe even being canceled due to filing multiple claims, some people pay for repairs to an auto or for slight or recurring illnesses, out of their own pocket. Any claim that you would normally file should be scrutinized to see if the potential for increasing insurance rates is worth the cost of paying to solve the problem yourself. Some people balk at this simply because it diminishes the reason for carrying insurance in the first place. But you have to stop and consider the ‘big picture.’ Will it end up costing you more if file the claim? Only you will be able to answer that question, because everyone’s financial situation is different. For some people having their monthly bills go up is unacceptable, because they simply don’t have the money. For others it would be much easier to file the claim, let the insurance company handle the problem, and pay a few bucks extra every month.

Go Shopping

If it gets to the point where the monthly premiums are too high, then you could try and find another company that will give you better rates, despite the fact that you’ve filed multiple claims in the past. If you go shopping on the Internet, and at the more traditional brick and mortar companies, you may be able to find a company that will take a chance on issuing you a policy without you having to pay a lot of money.

Guest post from Cameron Gray. Cameron writes for

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