Making a claim with homeowner's insurance - worth it?

August 16, 2024 7:58 AM

A short-term rental property I own has experienced a major breakdown of our well. What are the pros and cons of filing a claim?

I own a small house that spends most of its time as an AirBnB. The home is on well water, and the four-year old rock well recently experienced some kind of shift that sent major amounts of sediment into the plumbing. Luckily, the well is still under warranty, so that's being taken care of, but we're going to need servicing of the water softener and water heater and possibly other aspects of the plumbing - and we don't know yet if any of those appliances have been damaged and will need further repair.

In the meantime, the house is not habitable so we're also losing money on canceled guests.

My homeowner's policy with State Farm covers these things, including lost income, as long as, of course, they determine that the issue with the well is not simply wear and tear or deterioration (which I don't think it is).

We think, all told, we'll be out $3000-5000 when all is said and done, which is not a huge amount of money in the bigger picture, but it's a lot for us!

I've never made a claim with homeowner's insurance, though, and I've heard stories about how filing such claims can result in rates going up or even being dropped, so I'm trying to determine if it's worth it to file a claim at that amount.

This is in Michigan.

Does anyone have any experience or advice?

posted by Ms. Toad to Work & Money (4 answers total)

If you have a policy with an agent (i.e., a human being you could talk to rather than having to call in to the Corporate Mother Ship), that's part of what service they should be providing you: You could say "hey, in your opinion, if something like this happened, would that be a sensible thing to claim on the policy, or a sensible thing to eat in order to {keep my premiums low, not get my policy cancelled, etc}?"

I don't trust insurance companies (or warranties, or gambling) but over the years I've found a reliable agent who will have those conversations. (The price for that advice is that they're going to try and sell you a whole life policy for you or your kids or your dog or your college roommate or who knows what... so put your shields up for that)
posted by adekllny at 8:27 AM on August 16 [1 favorite]

I thought this was one of the exact use cases for buying insurance. It seems to me that the amount of your deductible is very relevant. If you are not going to file in these instances, you should have a very high deductible lowering the cost of insurance. If your deductible relative to this claim is high, then consider not filing, but adekilny gives good advice above. Talk to your human agent.
posted by JohnnyGunn at 8:39 AM on August 16 [1 favorite]

I was getting new quotes for home insurance recently, and I asked my agent for more info about how insurance companies drop customers for having too many claims. Her advice was to never file claims for stuff you can afford to cover yourself, and only file when something devastating happens that you don't have any other way to pay for.

Ultimately, it's subjective. Things I would weigh in my decision:

• Are my other policies (car, personal home, etc.) with the same insurer? I might be less likely to risk other policies being affected if they're bundled, and more likely to file a claim if it's a completely separate insurer.
• Have I filed other claims with this policy/insurer in the last few years? Often they'll drop you after ~3 claims, and other insurers won't want to insure someone with frequent claims. I wouldn't want to use up my second or third claim on something small.
• Since it's a rental property, it feels more likely there could be big claims from the kind of goofy mistakes renters/guests tend to do. Oops, they flooded the house by clogging a drain, left windows open in a storm, hit something structural with their rental car, left the house unlocked and vandals trashed it, etc. I'd probably have a higher threshold for what justifies a claim on a rental property than with my own home.

And +1 what JohnnyGunn said about deductibles. It's worth setting those higher so they're closer to the inflection point where you're actually going to file a claim.
posted by katieinshoes at 8:54 AM on August 16

I’d probably just pay it out of pocket, and I wouldn’t bother asking a human for advice. I had my second water damage incident and spoke to an agent at State Farm (my insurer) with concerns about premiums going up. He reassured me that my premiums wouldn’t go up if I filed the second claim so I filed it…and they dropped me entirely. Internet research suggests that folks are often dropped after the second claim. I’d save filing for really expensive incidents.
posted by whitelily at 8:28 PM on August 16