Do you have any personal rules for when to file an insurance claim?

Question

Historically, I've been very averse to filing insurance claims for fixing things like broken windows, since I worry about premiums going up too aggressively, and the general ability to get insured at all. I just kind of think of it as an absolute last resort for emergencies, in the event of a catastrophe (e.g. building burns down).

I'm curious how others treat it. Assuming you have sufficient reserves to address things that come up up out of pocket (like bigger repairs), but are generally running pretty lean, do you just never bother with insurance claims? Or do you use them pretty liberally, and have found it's worth it, in that premiums increase much slower than the amount you save by filing claims? What's the sweet spot? Is it any different for commercial real estate than residential?

Bill B. · Answer

$2500-$5,000 deductible (wi 12 properties pay for itself about every 2 years over $1,000). I would never make a claim under $10,000.

In 24 years with a dozen properties (288 property years) I’ve covered a $3,500 flood caused by clothes washer not turning off and made 2 claims over $30,000. Both were caused by toilet supply lines bursting.

So the high deductibles and lack of claims probably saved me $40-$50k?

David Kim · Answer

Thanks to all who replied! I got busy and just managed to check back in now. Sounds like I'm already leaning the way most are - don't use insurance for anything non-catastrophic.

That's a really good point about replacement cost, it hadn't occurred to me that if I want to rebuild, there's a business loss component as well. TBH in that case I'd most likely use the insurance money to pay off the loan and sell off the land. This isn't my primary source of income, and the logistics of executing on a rebuild sound like more trouble than they're worth.

Ray Hage · Answer

If you are making claims for smaller items like a window breaking, a minor roof leak, etc, your deductible is likely the similar or higher than the claim itself. You're essentially asking for your insurance to be raised for little things like. Use there insurance for when you need it, say a tenant absolutely trashes your place, a major fire, flooding, tree falls on roof, etc. These are going to be thousands of dollars to repair and that's really what insurance is for. The small stuff should be taken out of your reserves....you do have reserves right? (joke)

Henry Clark · Answer

Your existing deductible should preclude this question.

What size and type of properties do you have?  $500,000 residential?  $2mm commercial?   Etc.

Your basic question your deductible should be set at a high enough rate to where you’re covering excessive premiums. Example.  If you have a $500,000 residential and your deductible is $250 then you are paying too much in premiums and you could cover personally.  Based on this question I would review all your policies.

Do you have a commercial insurance provider or your local agent?  You want a carrier who deals specifically in your type of asset.  They will be less expensive and provide better coverage.

Check you have adequate coverage for cleanup, business income loss, personal property coverage,

Examples.  If a fire or tornado totally destroys the building and they give you replacement cost.  Does this include sufficient cleanup costs?  If this was a furnished apartment and it burns. Do you have enough personal property coverage for the furnishings.  If it is totaled and you have a loan against it. Do you have business income loss coverage for say 18 months while the house is being rebuilt?  Otherwise you have to pay the note with no income.

John Mocker · Answer

David,

FIrst comment is, discuss this with your agent.  Alot can depend on the situation for the market in your area or for your type of property.  For example, the FL market is in such trumoil, I would be even more heistant to file a claim if there is any possiblity that it would impact your renewal.  Your agent should be able to let you know, based on the company's current guidelines, how the renewal would be handled.

If there is a chance that this will lead to litigation, even if the amount now is low, I would probably file the claim.  If there is any Environmental aspect I would probably file the claim.  Your policy requires you give prompt notice of claim so you do not want to have issues later due to not giving notice.

Sam Yin · Answer

$20K is my number. I think the mindset behind that has already been posted.

I have done 3 claims in the last 10 years. One was when a drunk driver in a big rig plowed THROUGH a property, almost killing the tenants sleeping inside. The other was a major slab leak that require a full gut and remodel, as well as hotels/relocating a family of 7. The last one, a few months ago, was a reroof of three structures and some repairs inside from major storm leaking/flooding.

Premiums are going up...

Ronald Rohde · Answer

Be sure your lease matches that plan. You need to be able to terminate the lease if you don't intend to rebuild. Not just a Tenant option to terminate and no, its not automatic.

Ronald Rohde · Answer

The answer is yes, you need to develop your own internal policies on what should be repaired out of pocket vs filing a claim.

If you find lots of broken window type repairs, you are better suited to adjust your tenants or something you're doing to minimize the harm. If you want a rule of thumb, most people try not to file any claims. Its a long, tedious process that only pays off for casaulty losses that could be an entire roof, foundation, fire, vehicle crashes into structure, etc.

Adam Martin · Answer

I can’t see me filing a claim for a broken window because my deductible is $1000 and I can’t see a window being much more than that.  I try to keep claims for big expenses like roofs after a storm or if the place burnt down.  Over all of my policies even small increases in my rates would really add up so I make sure the claim is worth it.  Generally speaking if I’m out of pocket more than a few thousand is when I’d file. Here we get strong winds and hail so I do t know of anyone who has gone full out of pocket for a roof but that is written into our higher rates.  Also don’t forget about requiring renters insurance.  I just filed a $6000 claim for a tenants movers improperly disconnecting a washing machine and causing a flood and it didn’t affect my insurance at all.

Do you have any personal rules for when to file an insurance claim?

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