Home Owners Insurance claims can cost you

By Janis Mara, BUSINESS WRITER



When rainwater damaged her home, Diane Canadas quickly filed aninsurance claim and fixed the leaking roof. When she bought a new home in El Dorado County four years later, she discovered that her seemingly efficient response might have been a mistake.

"The homeowner's insurance premium for the new house almost doubled when Allstate learned about that claim," said Michael Godfrey of Fremont. Godfrey bought the El Dorado County house with Canadas, who is his sister, in September. "Originally, it was about $500 for a year. When they learned of the claim, it jumped to $900."

Canadas had run afoul of a major Catch-22 of homeowner's insurance: Filing a claim can increase your premium. There are some ways to negotiate these rocky shoals and maybe even reduce your premiums.

"You want to think very carefully about filing a claim," said John Harris, an insurance agent with Farmers Insurance in Hayward. Not only is it likely your rates will go up, your policy might not be renewed or might even be canceled, and it will be hard to find another carrier, Harris said.

The trick is to do a risk-benefit analysis and decide whether it's worth it. For example, though most homeowner's policies cover personal belongings, it often doesn't pay to file claims for theft.

"If your $750 television is stolen and you have a $500 deductible, you could get $250 back. But you will have to pay a higher rate for the next three years and that could outstrip what you got

for the claim," said Harris.

"Your home insurance policy is not a maintenance policy," said Jerry Davies of the Personal Insurance Federation of California. "It's designed for serious losses such as a roof blowing off and rain flooding the house."

If part of a fence collapses or a hot water heater breaks, "fix it yourself," said Davies.

When is it a good idea to make a claim?

If damage is affecting the marketability of the house, that probably means you should make a claim, Harris said.

"Water leak, fire damage, wind damage -- if the structure is damaged, get that fixed," he said. Hence, Canadas was probably wise to repair the water damage caused by her leak, despite the resulting rate hike.

Before filing a claim, discuss it with your agent. It's important to develop a relationship with your agent, Harris said. For example, some people simply can't afford to pay for necessary repairs even if they're not catastrophic. An agent can help you weigh the risks.

It's not just risky filing a claim yourself. If you're buying a home and the previous owner filed too many claims, your rates will probably be affected.

"If the seller made a homeowner's insurance claim in the last three years, the buyer will pay maybe double what he or she anticipates paying," said Ann Biddell, who has sold real estate in Hayward for more than 20 years.

Biddell advises people to get insurance in place at the beginning of a transaction. And Harris recommends having your real estate agent find out if any claims have been filed on a property you're interested in.

Filing a claim doesn't always result in higher rates, according to Steve Bartley, who has been a State Farm agent in Fremont for 25 years.

"For example, if you have been insured with the same company long enough, you may get a forgiven claim," Bartley said. Multiple claims are almost certain to land you in trouble, though, especially within a 3-year period.

If you must file a claim, take heart: Many companies will reduce your premium to the prevailing rate after a certain time period, generally three to five years.

Other than being careful about filing claims, there are a number of other ways to keep premiums low. First, go for the highest deductible you can.

"The $500 deductible is going by the wayside," Harris said. He pointed out that "you don't want to file a claim for $1,000 or $2,000 anyway." Harris recommended a deductible of at least $1,000.

Deductibles can save 15 percent or more on the cost of the premium, according to the Insurance Information Network of California. (The average premium for homeowners in 2001 in California was $599 a year, according to the organization.)

Installing smoke detectors and an alarm system and adding your car to the policy are two other ways to bring costs down, according to Harris. And, as always, an ounce of prevention is worth a pound of cure.

"Clean your rain gutters, check the pipes around your toilet, dishwasher and clothes washer. Clear debris from around your home," said Davies.

"People who don't maintain their homes may have more claims. The insurance companies will see them as a greater risk and charge more because of it," Harris said.