Why I'm Glad Your Renters Insurance Was Canceled

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A photograph of a burglar outside a house at night.
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I saw a segment on a news show recently that highlighted a family whose insurance company had canceled their renters policy. The family in question filed two claims against their policy over the holidays, after burglars broke into their home before Christmas and again just before New Year's. As a result, their insurer dropped them.

Of course, the timing was horrible, and the local media covered the story exhaustively. But I'm glad the insurance company canceled their policy, and you should be happy, too. Here's why:

What are the odds of a family having two robberies in such a short span of time? It's very unlikely. In fact, such unusual circumstances are strong warning of potential fraud. And while I don't want anyone to needlessly suffer, if insurance companies don't take action when faced with those sorts of events, it could translate into higher insurance costs for the rest of us.

It All Comes Down to Higher Rates for All of Us

Most people forget that most insurance coverage is typically a group policy. Insurance companies, whether they're selling property insurance or life insurance, depend on large groups of people acting as participating partners. It's the law of large numbers at its finest.

Insurers have armies of actuaries whose sole job is to determine the likelihood of a payout on a given policy. Our policies, and their profits, depend on most people paying their insurance premiums and hardly ever needing to file a claim. That, combined with the actuaries ability to make accurate predictions, is what keeps premiums relatively low for the rest of us. Having one customer file two claims practically back to back is highly unusual. If it stopped being unusual (say, if unscrupulous individuals realized you could do that without consequences), the ripple effects would spread through the system.

Insurance companies raise the cost of premiums when they have to make more payouts than they anticipated. Maybe that wouldn't happen right away, but eventually, they always increase prices to cover their unexpected losses.

Don't File Small Claims on Your Insurance

So what can you do to ensure that your insurance premiums don't go up? First of all, you should be happy if your insurance company is denying frivolous claims or dropping its coverage of less-desirable customers. That ultimately keeps prices low for those of us who rarely or never have to file a claim.

Most insurance is a safety net against catastrophic bad luck. And that's the only time you should use it. If you can self-insure yourself against having to make small claims, that's the way to go. Save your insurance for when you really need it.

For example: What's the first thing you do when you have a fender-bender? Most people reach for the phone and call their car insurance companies. But, you may be better off self-insuring in the case of a single-car accident with no injuries. The same may also be true for small renter's insurance claims, which may be better to self-insure.

For your own single-car accidents, you should seriously consider getting an estimate from an auto body shop to have the damage repaired out of pocket instead of filing an insurance claim. Many can give you a free written estimate on your first visit.

You also have to consider your deductible. (On our cars, it's $500.) Even if the cost to repair the damage is a little more than that, it could be worth it to simply pay out-of-pocket. Otherwise, if you file a claim and get paid, you could see your insurance premiums go up or even have the policy canceled altogether.

But if another person is involved in your car accident, you should call your car insurance company. If you don't make a police report and file a claim with your insurance company, the other party could still sue you later for injuries. And your insurance company may refuse to cover a bodily injury claim against you if you didn't notify them of the accident in a timely manner.

Have an Emergency Fund to Protect Yourself and Keep Your Premiums Low

An emergency fund can help protect you from having to file small claims against your insurance policy. These funds are no longer simply to protect you against a job loss, a broken-down car, or an unforeseen expense. You should also think of your emergency fund as a cushion that can provide you with a stopgap for small losses from accidents or theft.

While no one wants to pay for damages or replace stolen items out-of-pocket, filing a claim might not be the best route either. Your insurance should protect you from the major losses, not the little ones.

Has your insurance company ever rejected a claim you filed? Has one ever cancelled your coverage? Do you dip into your emergency fund rather than submitting small claims? How many claims have you filed in the last year?


Hank Coleman is a financial planner and the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @MoneyQandA.

More From Hank Coleman: (Update: A previous version of this article failed to note the difference between how you should treat single-car vs. multiple-car accidents. We regret the oversight.)

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101 Comments

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cat5400

The whole idea of paying insurance premiums is to have coverage when you need it. While I agree that putting in a small claim is not a good idea, that should be at my option and the insurance companies should not be allowed to drop someone unless fraud is proven. As long as I pay my premium I should enjoy the coverage I'm paying for, regardless of legitimate claims. All insurance companies want the luxury of their premiums with little payout, but they are in the business of insuring.

January 20 2014 at 12:44 PM Report abuse rate up rate down Reply
1 reply to cat5400's comment
svitola

When your premium was first determined, it was based on your claims history, if you file a claim and now have a claims history, you changed the formula, which will require you to pay a higher premium. Insurance companies are in the business of making money.

January 28 2014 at 11:38 AM Report abuse rate up rate down Reply
Skai

I dont like fraud but I also dont like CEO's who boost profits by making it a policy to deny legitimate claims and then pocket their 50 mil bonus they made by denying claims. Rather than penalize people who make a small claim when their house is robbed, why not just only write policies for catastrophic losses? Really - why not? Why dont they say you cant file a house claim for under $35,000? because they WANT you to file a $300. claim, so they can smack on a penalty of $500/year.

January 20 2014 at 9:50 AM Report abuse +1 rate up rate down Reply
1 reply to Skai's comment
svitola

Keep in mind the State Board of Insurance determines how a policy is structured.
You can request a high deductible, but should not file a claim unless it is really exceeds the deductible.

January 28 2014 at 11:57 AM Report abuse rate up rate down Reply
Iselin007

I am glad they closed a lot of these bars. Closing those places down must have stopped a lot of repeated hit and runs and other property damages. Now if they can just have enough cameras to catch the people at fault in accident the culprits would not get away with it just because there wasn't a witness.

January 20 2014 at 9:32 AM Report abuse rate up rate down Reply
sepjava

IT CAN HAPPEN, IT DID HAPPEN. IT SO HAPPENS THE THEIVES CAME ILL PREPARED AND COULD NOT CARRY AWAY ALL MY TOOLS IN ONE TRIP. I DID NOT EXPECT THEM BACK A SECOND TIME EITHER, THEY PREPARED. . . .CAME BACK LATER AND GOT THE BIG STUFF.

SAVE PREMIUM $$$ BY INCREASING DEDUCTIBLE AS INS. CO. WILL DISCOURAGE SMALL CLAIMS ANYWAY. DO THE MATH. . .SMALL DEDUCTION VS. PREMIUM DIFFERENCE.

AUTHOR OBVIOUSLY OWNS INS. CO. STOCK.

January 20 2014 at 9:17 AM Report abuse rate up rate down Reply
Iselin007

Depending where you live too many people commiting crimes stealing from clients, policy holders,and companies. Almost every day you hear about some jerk stealing 100's of thousands.

January 20 2014 at 9:13 AM Report abuse rate up rate down Reply
Iselin007

Crooked policy holder's agents or people in third parties trying to steal should be dealt with as needed. The crime wave in this country costs everyone so something has to be done to get the illegal perps so costs can go back down where they belong as affordable for the common person.

January 20 2014 at 9:07 AM Report abuse rate up rate down Reply
1 reply to Iselin007's comment
svitola

Most Agents are in the Insurance business as a career and therefore do not steal as it would end their career. Maybe 1 out of a 1000 would be stupid enough to commit a crime. So policy holder's Agents are not crooked.

January 28 2014 at 12:16 PM Report abuse rate up rate down Reply
Iselin007

What about renters who sublease or use their apartments as illegal boarding homes or hotels housing 20 people per room on mattressesand do this along with others?

These for profit money laundering scam artists hurt the town's taxpayers, the county and the state and cheat the insurance companies and other policy holders not to mention the share holders!

January 20 2014 at 8:56 AM Report abuse rate up rate down Reply
1 reply to Iselin007's comment
svitola

Renters who sublease will null and void their renters policy as policy was rated based on then occuping the apartment

January 28 2014 at 12:18 PM Report abuse rate up rate down Reply
HEIDIFIDO

well I think its terrible to just assume this Family commited Fraud ,is there any Eveidence ?
Insurance companies make Millions and the reason Peple have Insurance is so they can file A claim if warrented and for them to raise prices after a couple of claims is NOT warrented
ITS ALL GREED ON PART OF THE iNSURANCE COMPANIES

January 20 2014 at 8:51 AM Report abuse +1 rate up rate down Reply
poolcue1950

IT CAN HAPPEN IS HE KIDDING .jerk must be a republican .

January 20 2014 at 8:47 AM Report abuse +1 rate up rate down Reply
jackjazzdog

The fact that what Hank states is true is very disturbing in itself. I am ashamed of our society today and the fact that we allow this to constantly happen while we just complain to ourselves. big business reap record breaking profits and we are told that we need to tighten our belt and not expect to get any relief. while I don't agree that people should misuse the insurance system I do understand why they do it. I hate that I just said that but it's a different day and we either have to change the way we view things or stand together for change.

January 20 2014 at 7:55 AM Report abuse rate up rate down Reply