Why It Doesn't Always Pay to File an Insurance Claim When Your Home Is Damaged

Don't rush to file a claim the moment something goes wrong with your home.

The great thing about homeowners insurance is it can protect you from extreme financial losses in the event that your property sustains damage. Say there's a fire in part of your home that results in a $40,000 repair bill. Without insurance, you might be on the hook to cover that expense on your own, which could destroy you financially.

But that doesn't mean it pays to file a claim with your insurance company every time your home sustains damage. If you encounter an issue that's more minor in nature, it could make sense to just leave your insurance company out of it and deal with it yourself.

Homeowners insurance claims and deductibles

You may be familiar with the concept of deductibles in the realm of health insurance. It's common for health insurance policies to have an annual deductible, where you're required to spend a certain amount of money out of pocket before your insurance kicks in and covers your medical services.

Homeowners insurance deductibles work similarly, only whereas health insurance generally imposes an annual deductible, homeowners policies impose a deductible on a per-claim basis. This means that every time you submit a claim to your insurance company, there's a deductible you'll need to meet if you want your insurer to cover the cost of the issue at hand.

Let's say your homeowners insurance policy comes with a $750 deductible. If you experience an issue that only costs $650 to fix, going through your insurance company won't be worth it, because that threshold is too low for your insurance to kick in.

On the other hand, if you're looking at a home repair for $1,650, then filing a claim through your homeowners policy makes more sense. While you'll need to fork over $750 toward that repair, your insurance company, if your claim is approved in full, will cover the remaining $900.

But what if you're looking at a repair that only costs a little more than your deductible? Say you have that $750 deductible and you're looking at a home repair worth $850. Filing a claim could mean spending $100 less than what you'd be looking at if you were to cover that cost on your own, without going through insurance.

But remember, the more claims you file against your homeowners policy, the more your annual premium has the potential to rise. Your premium is the fee you pay each year to have your insurance in the first place. In this situation, filing a claim against your insurance company might save you $100 -- but you might then also see your premium rise by $120 for the next year.

Crunch the numbers

When you're dealing with a whopping home repair, going through your insurance company can be a no-brainer. But that doesn't mean every bit of property damage is worth filing a claim for. Run the numbers to see what makes the most financial sense before rushing to get your insurance company involved.