Worried your insurance company might not renew your policy because you made a claim? Well, you can calm your fears — sort of.
Insurance should be solely for catastrophic circumstances
Clark has long said that some kinds of insurance like homeowners insurance are a ‘use it and lose it‘ kind of thing.
Though increasingly, both the size of the claim and frequency of claims will come into play when an insurer is assessing you as a potential renewal customer. That’s according to Kevin M. Lynch, an assistant professor of insurance at the American College of Financial Services and a former owner of an insurance agency himself, as quoted in the New York Times.
Take the case of the Wergeles, a senior couple who live in Connecticut. They’ve been with Travelers Insurance for home, auto and other coverage since 1999.
Then last year, Nancy Wergeles lost the engagement ring her husband had given her 53 years ago. So she filed a claim with Travelers and got a $19,000 check three weeks later to replace the ring.
Sounds great, right? Unfortunately, Travelers dropped the Wergeles as customers the following spring. Technically, it was not a cancelation, but rather a nonrenewal. (A policy cancelation usually only occurs when you don’t pay your premium, misrepresent yourself or engage in insurance fraud, according to Janet Ruiz of the Insurance Information Institute.)
It turns out Nancy also had a $1,500 claim for a lost earring in 2013. On top of that, the Wergeles had a nearly $22,000 claim a few years back resulting from damage sustained during Hurricane Sandy.
Prior to that, there was a $57,000 claim on their auto insurance when Mr. Wergeles wrecked two cars because of the effects of the early onset of Parkinson’s disease.
So it was the frequency of claims issue coupled with the size of the claims over several years that likely swayed Travelers to mark the Wergeles for nonrenewal.
The lesson here, as Clark has noted, is that you should treat insurance as a ‘use it or lose it’ proposition — even though the entire picture is more complex than that.
When it comes to making small but legitimate claims, Clark has been fierce for years on the point that you shouldn’t do this. What you should do instead is take the highest deductible that the insurer or your auto financier or mortgage company will allow and that you can afford. For auto insurance, typically that means a $1,000 deductible.
Meanwhile, you never want to make a claim on auto insurance for something small like a cracked windshield because the consequences are so ugly. The insurer may surcharge you for a number of years; eliminate discounts you would otherwise qualify for; or target you for nonrenewal.
We need to get back to thinking of home and auto insurance as being for its original purpose: For catastrophic circumstances only!