What Drives Home Insurance Rate Increases?

Scared that filing an insurance claim might cause an insurance rate increase? You are not alone!


The good news is that with the right reason, your home insurance company is not allowed to increase your rate. But what is the “right reason?”


There are a few things that are taken into consideration when you file a claim. Let’s walk through an example to see how these factors affect rate increases.


Assume a fire started in your home. It burned to the ground, and you lost everything. A fire is a serious type of claim; and, a fire that causes a total loss is obviously a large claim. This is the type of claim that could result in an increase in your rates. This last factor is quite important. The reason why the fire started.


If you talk to people on the street about this same scenario and asked if they believe their rate would increase. Most people would answer, “Yes,” without a second thought.


This is wrong. The correct answer is, “It depends on the reason why the fire started“.


Why do so many of us have this fear?


We have been conditioned to assume that filing a claim, any claim, will cause our rates to go up.


Auto insurance has worked this way for a long time, so we expect all insurance companies, including home insurance, will operate this way. But, making a claim doesn’t always equal a rate increase.


Why is the reason for the claim so important?


Back to our example, we’ll say your house fire started due to a lightening strike. While your claim is still both serious and large. The reason is due to a naturally occurring accident or sometimes called an “Act of God”.


Because the reason for the claim is due to an accident and isn’t from your own doing, the insurance company cannot increase your insurance rates solely due to just filing a claim.


Alternatively, if your home caught fire because you were consuming a large amount of alcohol while teaching yourself how to juggle flaming batons; and, then passed out while subsequently setting your home ablaze – that would be an accident due to a poor lack of judgement, not something naturally occurring.


Why doesn’t a naturally occurring incident cause an increase in homeowners insurance rates?


Simple. The key words are naturally occurring. A naturally occurring event was not caused by you and therefore by law cannot be used as a reason to increase your homeowners insurance rates.


But if by any chance, the reason behind your insurance claim is the mentioned flaming baton scenario. The insurance company may still pay what’s due under the claim. If that’s the case, count on either being dropped by your insurance company or expect a rate increase to cover the cost of your future lack of good judgement.


My advice is, file a claim. Don’t be afraid your rates will automatically increase and take advantage of the help you deserve. Keep in mind, you pay premiums every month for a reason.

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