When to File a Home Insurance Claim vs. Paying out of Pocket

An insurance claim is a declaration of loss that you submit to your insurance company requesting financial assistance. The insurance company will compensate or refund you if the claim is authorized.

It sounds simple, but it could be more straightforward. Your insurance policy only covers losses caused by covered risks. And excessive claims filing is a warning flag for insurance carriers. Consequently, there are situations in which you may question whether you should pay out of pocket for a car accident or property damage.

When to Pay for an Accident Out of Pocket

If your home has been rendered uninhabitable by a natural disaster or if your vehicle has been completely wrecked, there is little doubt. You must submit a claim. However, there are several occasions in which it may be prudent to pay cash.

If the damage to your automobile or residence is less than your deductible, it's best not to file a claim. If the amount of damage is marginally more significant than your deductible, consider submitting an insurance claim. Not only can the claims procedure delay the completion of required repairs, but you may also suffer unwarranted consequences from your insurance provider.

A deductible is an amount you must pay for damage when filing a claim before the insurance company assumes responsibility for the remainder. Typically, auto insurance deductibles are predetermined sums of $500 or $1,000. In the case of wind-related damage, house insurance deductibles could also be fixed dollar amounts, such as $2,500 or $5,000, or a percentage of your dwelling coverage.

Damage Costs Are Less Than Your Deductible

Even if the cause of the damage is covered, your insurer will not pay for damage less than your deductible. When you signed up for your plan, you agreed to pay a set amount before the insurer covered the remainder. If you've sustained catastrophic damage that demands a complete rebuild, it's a modest price to pay to pay your deductible. In most instances, the majority of costs are borne by the insurance company.

Typically, damage that is less than your deductible is considered modest. Whether the damage is to your home or vehicle, it is unlikely to significantly impact your way of life. If this is the case, your insurance expects you to have some money set aside or be able to gather it quickly.

Typically, insurance companies permit policyholders to reduce their monthly premiums by increasing their deductible. If you don't have sufficient funds on hand to cover any minor losses you incur, you should avoid this option.