Will my insurance policy be cancelled if I file multiple claims?

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Filing a homeowners insurance claim can be tricky as it can lead to an increase in premiums or even a cancelled policy if too many claims are filed. More Tax Pictures can be found below.
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For years, you have been paying your homeowners insurance without fail until one day when you move your $1,200 flat screen TV downstairs and it falls and breaks. You file a claim against your insurance policy and they pay for it. A few weeks later, lightning strikes your property causing damage to your well pump and you file another claim. This is followed by a $700 roof repair two years ago. While you are enjoying your flat screen, you receive a letter from your insurance company stating that they are not going to renew your policy.

Why is this happening? The insurance company considers you to be a bad risk since you have filed too many claims within a short period. Can they cancel your policy just like that? Yes, they can.

Homeowners purchase insurance to protect their homes and belongings from different types of disasters, big or small. Filing a claim or multiple claims is a tricky business. Too many claims can lead to an increase in premiums, cancellation or non-renewal. Before filing a claim, it is important to think long and hard about whether or not it is worth it. Some claims are not worth filing. For example, the flat screen TV may have cost $1,200, but the insurance company only paid $700 after the $500 deductible. Your well pump only cost $1,000. Was it worth it to save a little cash? Probably not.

Insurance companies are watching and keeping track of individual claims through databases such as CLUE, the Comprehensive Loss Underwriting Exchange. Insurance companies have cancelled many people because of this and also because homeowners insurance is not a big money maker for insurance companies. In fact, insurers have paid out more money in claims than they have taken in as premiums over the last few decades. Natural disasters have caused billions of dollars in damage, with Hurricane Katrina alone costing $123 billion in property damage for insurance companies in 2005. In 2011, the insurance industry had another bad year due to a series of catastrophes such as earthquakes, floods, and tornadoes that generated $116 billion in claims.

The Insurance Companies are Watching

The Independent Insurance Agents & Brokers of America (IIABA) conducted a survey about homeowners insurance non-renewals and premium increases about 10 years ago. The results were alarming. Over a two-year period, 2.5 million households lost their homeowners coverage and 51 million households saw their rates increase. Nearly 57 percent of households saw their rates jump up to 10 percent, while 23.2 percent saw premiums skyrocket between 11 and 25 percent [source: Independent Insurance Agents & Brokers of America].

Insurance companies used to have to rely on public records and homeowners to determine whether or not to sell them a policy. However, now they can simply access the CLUE database, which contains up to seven years of personal property claims history. To keep your homeowners insurance, it’s important to be smart and use common sense. Avoid filing small claims and don’t file a claim if it’s less than your deductible by $200 or less. Try to bundle all your insurance policies with one company and keep doing business with the same company. Keeping your house in good repair can also save you money in the long run. Lastly, when you own a home, it’s important to become an insurance expert and think twice before submitting a claim.

Related Articles

  • Insurance Agents’ Guide to Detecting Fraudulent Claims
  • 10 Reasons Why Homeowners Should Get Insurance
  • Understanding Homeowners Insurance
  • Comprehending Flood Insurance
  • 5 Exclusions from Homeowners Insurance

Additional Useful Links

  • National Association of Insurance Commissioners
  • InsuranceAgents.com
  • National Association of Insurance Commissioners
  • Insurance Information Institute

References

  • Independent Insurance Agents & Brokers of America. “Consumers can Minimize Homeowners Insurance Non-Renewals, Rate Increases.” May 13, 2003. (April 4, 2012). http://www.iiaba.net/na/02_News/02_PressRelease/NA20030513092548?ContentPreference=NA&ActiveState=0&ContentLevel1=NEWS&ContentLevel2=NEWSPRESS&ContentLevel3=&ActiveTab=NA&StartRow=0
  • Christie, Les. “Homeowners insurance: Use it and lose it.” CNN Money. June 3, 2005. (April 4, 2012). http://money.cnn.com/2005/05/26/pf/insurance/use_it_lose_it/
  • Neligan, Myles. “Lloyd’s of London swings to second-worst loss.” Reuters. March 28, 2012. (April 4, 2012). http://www.reuters.com/article/2012/03/28/us-lloydsoflondon-idUSBRE82R06F20120328
  • Wisconsin Office of the Commissioner of Insurance. “Frequently Asked Questions About CLUE. (April 4, 2012). http://oci.wi.gov/pub_list/pi-207.htm

FAQ

1. Can an insurance company cancel a policy due to too many claims?

Yes, it is possible for an insurance company to cancel a policy if the policyholder submits too many claims. However, each insurance company has different policies regarding claim limits and cancellations. Some companies may cancel a policy if the policyholder submits multiple claims within a short period of time, while others may only cancel a policy if the policyholder submits fraudulent claims. It is important to review your insurance policy and speak with your insurance agent to understand your coverage and any potential consequences for submitting claims.

2. How many claims are considered too many?

There is no set number of claims that are considered too many, as each insurance company has different policies regarding claim limits and cancellations. However, if a policyholder submits multiple claims within a short period of time, it could raise red flags for the insurance company and potentially lead to the cancellation of the policy. It is important to review your insurance policy and speak with your insurance agent to understand your coverage and any potential consequences for submitting claims.

3. Can an insurance company cancel a policy without warning?

It depends on the specific circumstances and the policies of the insurance company. In some cases, an insurance company may provide a warning or notice of cancellation before cancelling a policy due to too many claims. However, if the policyholder submits fraudulent claims or violates the terms of the policy, the insurance company may cancel the policy without warning. It is important to review your insurance policy and speak with your insurance agent to understand your coverage and any potential consequences for submitting claims.

4. What should I do if my policy is cancelled due to too many claims?

If your policy is cancelled due to too many claims, it is important to review your insurance policy and speak with your insurance agent to understand the reasons for the cancellation and any potential options for reinstating your policy or obtaining new coverage. It may be helpful to review your claims history and identify any patterns or issues that may have contributed to the cancellation. Additionally, you may want to consider working with an insurance broker or shopping around for new coverage with a different insurance company.

5. How can I avoid having my policy cancelled due to too many claims?

One way to avoid having your policy cancelled due to too many claims is to use your insurance coverage judiciously and only submit claims for legitimate losses. It is also important to review your insurance policy and understand the policies regarding claim limits and cancellations. If you have concerns about the number of claims you are submitting, you may want to speak with your insurance agent to discuss potential alternatives or options for reducing your risk of cancellation.

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