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Use it and lose it

October 22, 2005 by Jonathan Stein

Use it and lose it – its the name of the phenomenon associated with homeowners insurance. File a claim and you get cancelled. Yes, in some states, including California, if you have an insurance claim, you may get cancelled, especially if that claim is for water damage.

The Minneapolis Star-Tribune ran an article about this today. In Minnesota, the Department of Insurance has received over 100 complaints, but does not consider it a problem.

The insurance companies like to blame a few things for this horrible idea: increased losses from Hurricanes starting with Andrew in 1994, mold claims, and a decrease in income from investments. The first two issues, increased losses and mold claims, effect what the insurance companies pay out. When that number goes up, net income goes down. The third issue, a decrease in income, means that even when they have a normal year of losses, ie no natural disasters, they still did not make as much money as they planned on making. Of course, for those of you read this regularly, you will recall my prior post about insurance companies holding money to increase interest income.

There is no solution for homeowners. If you have a claim, or a potential claim, there are some things to think about. First, figure out how much the claim is worth. If the damage is under $5,000, it may be worthwhile not to file a claim. Second, call your agent and see what the insurance companies policy is. If they have a use it and lose it philosophy, then find a new insurance company before you need to use it.

You would not put up with this from any other service, do not put up with it from your insurance company.

Categories: Claims, Homeowners Insurance

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