Not only can an insurer drop you after a single claim, it can drop you before you make any claims at all. Companies worried about future risks have cancelled policies in areas subject to hurricanes or mudslides, even if the policy holder hasn't filed. Even asking about coverage but not filing it can be enough to panic an insurer into dropping you.
Insurance companies are in it for the cash. If they have any reason to think profits are going down, canceling policies that might cost them money starts looking like a good idea. There's no hard and fast rule for when you start looking like a money loser. For some companies, it's two claims within three years; according to insurance agent David Shaffer, more than one claim in 10 years puts you in the danger zone.
If you file a claim, you may simply see your rates go up instead of losing the policy. Your claim also goes on your permanent record in the industry's CLUE database, as do any inquiries you make about coverage. If you have to start shopping for another insurer, other companies' underwriters can look you up in CLUE and see your claims history. If you look high-risk, you may become an untouchable.
Shaffer's advice is that when you take out your policy, get the largest deductible your insurer offers that you can afford. Even if you can't get a $5,000 deductible, you should avoid contacting your insurer unless your costs of rebuilding are at least $5,000. If, say, you collect for a $3,000 repair now, then see your premiums go up, you may find the increase eats up your insurance check over the coming years.
If your insurer drops you, your mortgage lender will require you to get a new policy quick. Your house is the lender's security on the loan: if you don't replace your policy, your lender can force-place you with another insurer. This usually costs you more, as the lender has no reason to worry about the premiums. In some cases lenders have been accused of farming policies out to companies the lender has ties to. Finding a new policy on your own prevents this.
- Stockbyte/Stockbyte/Getty Images