To file, or not to file?

Ben asks Dave how you know when to file a claim on your homeowner's insurance coverage versus taking care of things yourself. Dave gives him a "painful" answer.

QUESTION: Ben asks how to know when you should file an insurance claim on a homeowner’s issue versus just dealing with it and paying cash. Dave says it’s when you begin to feel the pain financially.

ANSWER: When it’s far enough above the amount of your deductible that you feel the pain. If you’ve got a $1,000 deductible, and you have a $1,100 issue, you pay the $100 out of pocket and don’t mess with it. But if you’ve got a $2,000 issue with a $1,000 deductible, that might be enough to get you to file a claim — depending on your financial situation, the expense of the house, cost of the insurance policy, and those kinds of things.

Somehow, we get the idea we make money on insurance processes. We don’t. Insurance companies make money, and consumers pay insurance companies. You don’t make money on insurance in the long-term. You may have a situation, once in a blue moon, where you come out ahead on a transaction versus what you paid in. But over the scope of your life, you don’t make money on insurance companies.

The point is this: If you turn in the claim, you’re going to experience a rate increase or cancellation somewhere — at some point — that offsets it. I only turn in substantial claims, meaning claims that are substantially above the deductible. I don’t want to have to deal with cancellations or rate increases, and I don’t want to be questioned about that stuff. I’ve turned in a few homeowners claims in my life and a couple on cars, too.