5 Times When You Shouldn't File That Insurance Claim

This holiday season, AAA estimates that about 84 million people, or more than a quarter of the country's population, will take car trips of at least 50 miles. The Consumer Federation of America forecasts that there will be more than 325,000 auto accidents during that period, leading to more than 200,000 claims filed with insurance companies.

And that's just for our vehicles. Every day, people have claims they can file with their home insurers, too. Guess what, though: Sometimes you should definitely not file that claim.

Insurance companies pay attention to customers who file a lot of claims. Every time you ask them to foot the tab, they take note. And at some point you become an unprofitable customer, driving them to raise your rates -- or cancel or refuse to renew your policy.

A better approach to insurance is to think of your policy as being there to protect you from big losses, not for taking care of every little mishap that occurs. With that in mind, here are five situations where it may be less costly in the long run if you simply skip filing a claim and pay for the losses out of your own pocket.

1. You have some moving violations on your record already.
Auto insurers quote you rates based on the kind of driver you seem to be. Some insurers raise your rates based on the size or number of claims you've filed, while others will also take into account the tickets you've received. So, if you have some moving violations on your record already, you might not want to chance filing a claim if you can avoid it, because that might lead your insurer to hike your rates.

2. The claim pays out little more than your deductible.
Another consideration is your deductible. If your policy has a $500 deductible, you might not want to bother filing a $600 claim, as it will only net you $100, and the claim could count against you one day in the eyes of your insurer -- especially if you end up having to file one or more within a few years. If your expense is less than the deductible, then you almost certainly will want to not file the claim, in order to keep your record as clean as possible.

Note, too, that you might want to consider raising your deductible to a higher level. A move from $250 to $500 or from $500 to $1,000 could significantly lower your annual premiums and over time could more than pay for itself.

3. The claim involves water damage.
If you're thinking of filing a claim on your homeowner policy due to water or mold, think twice. Since such problems can be so complicated, costly and sometimes persistent, insurers hate to see them. Some insurers refuse to cover mold, or make you tack on a rider to your policy to do so.

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A single small moisture-related claim can cause you huge headaches. Not only might it lead your insurer to drop you, but there will likely be a record of your claim in a central database accessed by most insurers, meaning that many or all other insurers might refuse to cover you, too. On top of that, the problem could even lead to difficulties selling your home, if would-be buyers find that they can't get insurance for it.

4. You could have prevented the damage.
Before filing a homeowner claim to cover damage, ask yourself whether you contributed to the damage by failing to address an existing problem. If so, your insurance company will very likely point that out and refuse to pay. Negligence is not reimbursable.

For example, if you sustain water damage in your attic due to a roof that should have been replaced years ago, that's a problem you could have avoided with regular home maintenance. That's different from a sudden weakness in your roof due to a storm or some other incident. Similarly, termite trouble is often expected to be discovered and addressed before your home sustains structural damage. Destruction due to pests is generally not covered by home insurers.

5. Someone else can pay for the claim.
We often think only about our own insurance company when we're in a traffic accident, but there's often another insurance company involved, as well. In states with at-fault insurance, if you're in an accident caused by someone else, you may be able to get the other guy's insurer to cover your cost, instead of your own insurer. This approach isn't always easy, though. Get some important tips from the Consumer Federation in its "Guide to Navigating the Auto Claims' Maze."

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.


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