Personal Finance

Think carefully before filing a homeowners claim

Nigel Carse | E+ | Getty Images

You buy homeowners insurance hoping you'll never need to use it. Then something happens. It's not a big loss—maybe the neighbor's kid throws a ball through a window or a falling branch damages the rain gutter.

You think of filing a claim. After all, that's why you've paid the premiums all these years. But filing has consequences you should consider.

"Don't make claims on small losses," said Laura Adams, senior insurance analyst at Insurance Quotes.com. "If it will only cost you several hundred dollars out of pocket, it's probably better to pay for the repair yourself instead of filing a formal claim with your insurance company."

The average rate hike for a family filing a homeowner's claim is about 9 percent, or $150 a year, according to a new study by Insurance Quotes. But In some states, that single claim could result in a price hike significantly higher than the national average.

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"Where you live plays a really big role in whether you should file a claim and the financial consequences you might see as a result of making the claim," Adams said.

The five states where the premium increases would be the highest for a single claim are:

  • Minnesota: 21 percent
  • Connecticut: 21 percent
  • Maryland: 19 percent
  • California: 18 percent
  • Oregon: 17 percent

The five states where the premium increase would be the smallest are:

  • Texas: 0 percent
  • New York: 1 percent
  • Florida: 2 percent
  • Vermont: 2 percent
  • Massachusetts: 2 percent

For this study, Insurance Quotes calculated rates for six large insurers based on a single-family residence insured for $144,000 with the initial claim of up to $30,000. Click here to view all states.

Why such a disparity?

Insurance is regulated at the state level, and the report said that differences were due to variations in state law and the occurrence of natural disasters. In Texas, for example, companies are not allowed to boost homeowner premiums based on a single weather-related claim.

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Also, insurers know their risk is higher in natural disaster zones, so policies are priced higher in states that have from hurricanes, tornadoes, floods and earthquakes. The Insurance Information Institute said the price spike in Minnesota is largely related to the "frequency and severity" of unexpected disasters there in recent years (the number of tornadoes has been well above historical norms).

"To get dinged on one claim is inappropriate," said Robert Hunter, director of insurance at the Consumer Federation of America and former Texas Insurance Commissioner. "If something is clearly your fault, and it happens more than once, they should be allowed to boost your rates. But it should never happen with a weather-related claim."

Is this really the way it's supposed to work?

We need to look at insurance differently than we did in the past, because the marketplace has changed.

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"It's always a good idea to weigh how bad the damage is to your property before filing a claim," said Michael Barry at the Insurance Information Institute. "Is this loss of such a magnitude that filing a claim is the prudent financial decision? If the loss is only $1,000 or $2,000 above your deductible, you may be better off paying for the repairs out of pocket."

"It's completely ridiculous and totally unfair," said Amy Bach, executive director of United Policyholders, a San Francisco-based nonprofit group. "I think it's outrageous that you can use your insurance and have your premium jacked up."

But that's the reality. And that's why consumer advocates recommend considering homeowners insurance protection against a loss that you couldn't afford to handle by yourself, based on your savings and income.

"Take the largest deductible you can stomach," said Kevin Brasler, executive editor at Checkbook.org. "With a high deductible, your rates will be lower and you're less likely to make a small claim that can be more costly than what you get out of it."

—By CNBC contributor Herb Weisbaum. Follow him on Facebook and Twitter @TheConsumerman or visit The ConsumerMan website.