We’ve seen a trend the last few years of customers turning in homeowners insurance claims anytime something goes wrong with their house. I think the reason for this is that people often mistake homeowners insurance for a warranty. Unfortunately, the two couldn’t be more different. The problem with turning in a claim for every little thing is that not all losses are covered by homeowners insurance and too many claims will often result in a bad outcome for the customer. I’ll start first with noting the difference between a warranty and homeowners insurance, then conclude with the possible consequences of turning in too many homeowners insurance claims.
What is a warranty?
In the strictest sense, a warranty is a written statement that promises the good condition of a product and states that the maker is responsible for repairing or replacing the product usually for a certain period of time after its purchase (Brittanica dictionary).
Warranties are common for most purchased goods such as appliances, furniture and vehicles. For example, you buy a refrigerator and it comes with a 5 year warranty. The ice maker fails in the first year. The manufacturer would replace the ice maker.
How is homeowners insurance different than a warranty?
Homeowners insurance, however, does not work this way. Should something in your house fail, there is no guarantee it will be fixed. Why? Because insurance policies specifically state what kind of losses are covered, usually by saying what is not (called exclusions). For example, flood is a standard exclusion, so if there’s a horrible rainstorm where 3 feet of water fills the first floor of your house, the homeowners policy will not pay to fix the damage. Nor will it pay to temporarily relocate you. Basically it won’t pay for anything related to the flood damage.
So, it appears that the main difference between a warranty and homeowners insurance is the word guarantee. A warranty is a guarantee and homeowners insurance is not.
What can happen to my homeowners insurance if I turn in too many claims?
(Need an explanation or refresher of the homeowners insurance claim process? Read our post). Insurance companies can do one of many things should the number of claims be more than they’re willing to tolerate:
- Remove a coverage. For example, let’s say you’ve had 2 water backup of drains and sewer claims. They may require that coverage be removed at the next renewal. If you don’t agree, they can cancel the policy.
- Require a higher deductible. Perhaps you have $1,000 and they will only continue the policy if you increase to $2,500.
- Add a surcharge. Some insurance companies will surcharge if the claim is over a certain dollar amount. It might be a percentage or a flat dollar amount and it will stay on the policy for a specified number of years (varies by carrier).
- Cancel or nonrenew.
We’ve also written a post describing when NOT to file a homeowners insurance claim. You can read it here. And keep in mind, it’s often a really good idea to contact your agent to discuss a possible claim before submitting it (of course barring an emergency). We can offer advice and guidance (as well as discuss possible consequences) to help you make the most informed decision.