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HOMEOWNERS INSURANCE
Think Twice About That Claim
by Elizabeth Razzi

Think twice before you submit a small claim under your homeowners insurance policy. If you get pegged as a frequent filer -- say, with three claims over three years -- your insurer may dump you. The long-term expense of a new policy could be much higher than paying for some minor damage out of pocket.

Gil Held learned that lesson the hard way. For three decades, he counted on Texas-based USAA to cover his contemporary home in Macon, Ga. Annual premium: $727.

Then lightning struck -- twice -- and the roof started to leak. Between February 2000 and August 2001, Held submitted three claims, totaling about $4,000, for damaged trees and water damage from a leaky roof. To avoid future water damage, Held shelled out $7,500 for a new roof.

But that investment didn't make him look any more attractive to his insurance company. As far as USAA was concerned, three claims in as many years marked Held as a high risk. So when his policy came up for renewal early this year, USAA pulled the plug and pointed its long-term policyholder to Foremost Insurance Group, a Michigan-based insurer that specializes in high-risk homeowners. Foremost's quote for a one-year policy: $2,826. "Financially, it would have been better to eat one of the claims," Held says.

"We at USAA do use claims frequency," says company spokesman Paul Berry, "as a significant factor in deciding whether to charge higher premiums, impose a higher deductible or even to decline coverage."

Three strikes is enough to get you jilted by most insurance companies these days. "In reality, the average person files a claim only once every eight to ten years," says Jeanne Salvatore, spokeswoman for the Insurance Information Institute (III). The specific number of claims -- and the time period -- that may prompt an insurer to drop you varies according to state regulation. But three claims in three years is a good rule of thumb. If you've already filed a claim or two in recent years, think long and hard before picking up the phone to report claim number three.

Save big bucks. That cold, hard reality means you should consider raising your deductible so you won't even be tempted to file a small claim. Hiking your deductible from the standard $250 to $500 will trim your premium by 10% to 15%. If you agree to take on the first $1,000 of loss, you'll cut the premium by 25%. Start banking your savings to pay for those little claims.

Raising the deductible will also lessen the sting of rapidly rising insurance premiums. Nationwide, homeowners' rates have been increasing by 8% to 10%, according to the III. In some areas -- particularly in Texas and California, where insurance companies have been hit with expensive claims for mold -- rate increases have been even higher.

As you think about raising your deductible, take the opportunity to shop for a replacement policy. Held did just that and found four quotes that were lower than what Foremost was asking. He has raised his deductible to $1,000 (from $500 under his old policy) and now pays $1,250 for a one-year policy. That is still nearly twice as much as he had been paying before his mini flurry of claims.