Episode Transcript
Hi there, this is the insurance phantom. Yes this is an AI-generated voice and an AI-generated avatar. I have to do this to protect my anonymity. I'm going to be telling you things today about claims that let's just say not everybody would want to have talked about or discussed.
You need to know when it's time to file a claim and when you should pay that claim yourself. The first thing you need to understand is how an insurance company makes money and it's not what you're thinking. An insurance company makes money two different ways:
One way is to take your premium, invest it, and make money on that money that was invested.
The next way is to collect your premium and pay back less in claims than they collected in premium, based on your claim frequency (meaning how often are you filing a claim), how much are they paying in claims for you, and if you're having claims at all. These are all things that are going to impact your premium.
Back to the initial question: when should you file a claim? The simple answer is if it's a claim that occurs and you can comfortably pay for it then you should. Insurance policies are not there to pay for maintenance. Insurance company policies are not there to pay for minor damage. Insurance company policies are there to pay for when something catastrophic happens
One broken window is something you should be able to pay for without it breaking the bank. Filing that claim not only is going to put you into a different risk category with your insurance company, you're also telegraphing to them, "Hey I've got no money. I can't afford to fix this window." If there's one thing an insurance company worries about, it's a client that can't pay their own expenses. If you can't pay your bills, maybe you can't pay your expenses. If you can't handle either of those then you are much more likely to have a claim.
This brings us to the question of deductibles. What type of deductible should you be carrying?
Just as a quick note a deductible is the amount of money that you will have to pay out of pocket before an insurance company is going to begin paying for your loss. Common deductibles might be $1,000, $2,000, $5,000, or even $10,000 or more.
A good rule of thumb on deductibles is that you should carry the largest deductible that you are comfortable incurring in the event of a loss. Remember if you're not going to file the claim, there's no reason to have a lower deductible since that lower deductible is going to cost you more in premium
So hopefully you're getting the idea. Claims that you can pay on your own you should pay. Claims that you cannot pay on your own you can file. Insurance policies are for large losses not small ones. They're there to step in when something major happens not when an inconvenient loss occurs
Now we get on to the most obvious question: why in the world would you pay the claim yourself? Isn't that why you have insurance?
The answer is simple math. If you file a claim every time you have a loss, regardless of the amount of the claim, number one, you're going to show the insurance company you're having a lot of losses. If you're having a lot of losses, you are going to be at higher risk and have fewer options to purchase insurance. Remember insurance companies would prefer you have zero losses. Having lots of them is not what you want to be showing off.
Use your insurance policy for the big ones, the things that would wipe you out entirely. Carry high deductibles. I promise you in time you will save money on your insurance. You will have more options to buy from different insurance companies. You will be eligible for more discounts. Overall have a much better experience, both emotionally and financially
Independent educational media. General information only; not individualized insurance, legal, or financial advice.