Claims Causing Canceled Insurance

Q: I heard that some companies cancel people's insurance if they have just one claim. Is this true?

Actually, it's very unlikely that any type of insurance would be canceled after you file a single claim. However, filing a claim could increase your premium on certain types of insurance.

For example, your auto insurance premium will almost certainly increase after an accident, especially if you're at fault. The reason for this is simple: actuarial evidence indicates that people who have had accidents in the past are more likely to have accidents again in the future. This means the insurance company could see another claim from you someday, so there is a logical reason to charge you more for insurance coverage. The big question is how much your premium will increase. This is more difficult to anticipate, because insurance companies can use different formulas to calculate rate increases.

Your premium increase may simply be a percentage of the premium you were paying before the accident, or it may be based on a complex formula that assigns point values to various types of accidents. In most cases, your auto insurance policy will not be canceled unless you have a certain number of at-fault accidents within a given period of time (e.g., two or three in one year).

Homeowners insurance premiums, on the other hand, are far less likely to increase after you file a claim. Most insurance companies do not increase homeowners insurance premiums after a single claim, no matter how large, particularly if the loss is caused by a natural disaster.

However, with a second claim under your homeowners policy, it becomes increasingly likely that your premiums will go up. This is especially true if you could have done something to prevent the loss. If you don't maintain your home properly, if it is somehow unsafe, or if you make multiple claims for similar reasons, you'll likely see higher premium rates.

There is one instance, however, when your homeowners insurance premiums will go up after a single claim. If the claim is for a dog bite, and you do nothing to improve the situation (e.g., fence your yard, etc.), your rates are sure to increase. Your insurer may even refuse to renew your policy in this case.

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