What is an Insurance Claim?
An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim and, if approved, issues payment to the insured or an approved interested party on behalf of the insured.
Insurance claims cover everything from death benefits on life insurance policies to routine and comprehensive medical exams. While a third party can sometimes file claims on behalf of the insured person, usually, only the person(s) listed on the policy are entitled to claim payments.
Key Takeaways
- An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event.
- The insurance company validates the claim and, if approved, issues payment to the insured or an approved interested party.
- For property-casualty insurance, such as car or home insurance, filing a claim can cause rate hikes to your future premiums.
How an Insurance Claim Works
A paid insurance claim aims to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for completing an insurance contract between the insured party and an insurance carrier. The most common insurance claims involve costs for medical goods and services, physical damage, loss of life, liability for the ownership of dwellings (homeowners, landlords, and renters), and liability from operating automobiles.
For property and casualty insurance policies, regardless of the scope of the accident or who was at fault, the number of insurance claims you file directly impacts the rate you pay for coverage (through installment payments called insurance premiums). The more claims a policyholder files, the greater the likelihood of a rate hike. In some cases, filing too many claims can result in the insurance company denying coverage.
Suppose the claim is based on property damage caused by you. Your rates will almost surely rise. Conversely, if you are not at fault, your rates may or may not increase. For example, if your car gets hit from behind when parked or if the siding blows off your house during a storm, these events are clearly not the policyholder’s fault.
However, circumstances such as the number of previous claims filed, the number of speeding tickets received, the frequency of natural disasters in your area (earthquakes, hurricanes, floods), and even a low credit rating can all cause your rates to increase, even if the latest claim wasn’t your fault.
When considering insurance rate increases, not all claims are created equal. Dog bites, slip-and-fall personal injury claims, water damage, and mold can serve as future liability signals for an insurer. These tend to negatively impact your rates and your insurer’s willingness to continue providing coverage. Surprisingly, your first speeding ticket may not increase your rates at all. The same can be true for minor car accidents or small claims against your homeowner’s insurance policy.
Types of Insurance Claims
Health Insurance Claims
Costs for surgical procedures or inpatient hospital stays are often prohibitively expensive. Individual or group health policies indemnify patients against their financial burden. Health insurance claims filed electronically by providers on behalf of policyholders require minimal effort from patients. However, policyholders must file paper claims when medical providers do not participate in electronic transmittals but charges result from rendered covered services. Ultimately, an insurance claim protects an individual from significant financial burdens arising from an accident or illness.
Property and Casualty Claims
A house is typically one of the largest assets an individual purchases in their lifetime. A claim filed for damage from covered perils is initially routed via the Internet to an insurance representative, commonly referred to as an agent or claims adjuster.
Unlike health insurance claims, the onus is on the policyholder to report damage to deeded property. An adjuster, depending on the claim type, inspects and assesses property damage for payment to the insured. Upon damage verification, the adjuster initiates the compensation or reimbursement process.
Life Insurance Claims
Life insurance claims require submitting a claim form, a death certificate, and often the original policy. The process, especially for large face value policies, may require in-depth examination by the carrier to ensure the death did not fall under a contract exclusion, such as suicide (usually excluded for the first few years after policy inception) or death from a criminal act.
Generally, the process takes approximately 30 to 60 days without extenuating circumstances, affording beneficiaries the financial means to replace the deceased’s income or cover final expenses.
Special Considerations
There are no hard-and-fast rules around rate hikes. What one company forgives, another won’t forget. Any claim may increase your rates, so understanding your policy is essential for protecting your wallet.
Talking to your agent about the insurance company’s policies is crucial before you need to file a claim. Some agents must report you to the company if you discuss a potential claim without filing. Therefore, don’t wait until you need to file a claim to inquire about your insurer’s policies with your agent.
Regardless of your situation, minimizing the number of claims you file is the key to protecting your insurance rates from a substantial increase. A good rule is to file a claim only in case of catastrophic loss. If your car gets a bumper dent or a few shingles blow off your roof, it might be better to cover the expense yourself.
If your car is totaled in an accident or the entire roof of your house caves in, filing a claim becomes a more economically feasible exercise. Keep in mind that even with coverage and on-time premium payments, your insurance company can still decline to renew your coverage when your policy expires.
Frequently Asked Questions
How Do I Initiate an Insurance Claim?
If you hold an insurance policy and experience damages covered by it, you can initiate a claim by contacting your insurer by phone, and increasingly online. Once the claim is started, the insurer collects relevant information and may ask for evidence (such as photos) or supporting documentation. An adjuster may be sent to interview you and evaluate your claim’s merits.
Why Does Filing a Claim Increase Insurance Premiums?
Filing a claim can sometimes cause higher insurance premiums because the insurer sees you as a greater risk than before and adjusts the cost accordingly. However, some insurers may forgive the first accident, for example. If you can prove a claim was made where you were not at fault, you may be able to reverse such an increase. Filing too many claims over a short period may, regardless of fault, lead to non-renewal of your policy.
Should I File an Insurance Claim if the Damage Is Less than My Deductible?
If the damage amount is less than your deductible, filing a claim may not make financial sense. For example, if you have $200 in damage and a $1,000 deductible, it wouldn’t make sense. But, if you believe the other party is entirely at fault and want their insurance to cover your damage, you may want to initiate a claim. Always consult your insurance agent before filing a claim.
Related Terms: Premiums, Deductibles, Insurance Policies, Claim Adjuster.
