When We Tell Clients NOT to File a Claim
The uncomfortable truth about when filing an insurance claim costs more than paying out-of-pocket. Real math on rate increases, claim history, and long-term costs that most agents won't tell you.
The $800 Claim That Cost $4,200
Jennifer's Birmingham home had $1,200 in wind damage to her roof. Her deductible was $1,000, so her insurance would pay $200. She filed the claim. Her carrier paid the $200. Then her renewal came.
Her premium increased from $1,400/year to $1,800/year—a $400 annual increase. That increase lasted for 5 years (the typical "claim surcharge" period in Alabama). Total cost of that $200 claim: $2,000 in rate increases + $1,000 deductible = $3,000 out-of-pocket. If she'd paid the $1,200 repair herself, she would have saved $1,800.
This is the math most agents won't show you. We will. Because our job isn't to process claims—it's to protect your financial future. And sometimes that means telling you not to file.
The Real Cost of Filing a Claim
When you file a claim, you pay three costs—not just your deductible:
This is the amount you pay before insurance kicks in. Typical deductibles in Alabama:
- • Auto collision/comprehensive: $500-$1,000
- • Homeowners: $1,000-$2,500
- • Business property: $2,500-$10,000
If your damage is close to your deductible, you're getting minimal value from filing.
Most claims trigger a "claim surcharge" that increases your premium for 3-5 years. Typical increases in Alabama:
- • Auto at-fault accident: 20-40% increase for 3-5 years
- • Homeowners claim: 15-30% increase for 3-5 years
- • Multiple claims: 40-60% increase or non-renewal
A single $2,000 claim can cost you $3,000-$6,000 in rate increases over 5 years.
Claims stay on your record for 5-7 years and follow you between carriers. Multiple claims can:
- • Make you ineligible for preferred carrier discounts
- • Force you into high-risk or non-standard markets
- • Trigger non-renewal, forcing you to find new coverage mid-term
- • Increase rates with every carrier you quote, not just your current one
A clean claim history is worth thousands in lifetime savings.
When We Tell Clients NOT to File: The Rules
We use a simple decision framework. If your claim meets any of these criteria, we usually recommend paying out-of-pocket:
Rule #1: Damage is Less Than 150% of Your Deductible
If your damage is $1,500 and your deductible is $1,000, you're only getting $500 from insurance. The rate increase will cost you far more than $500 over 3-5 years. Pay the $1,500 yourself and keep your clean claim history.
Example: $1,200 roof repair with $1,000 deductible → Pay out-of-pocket
Rule #2: You've Had a Claim in the Past 3 Years
Multiple claims trigger exponentially higher rate increases or non-renewal. If you've already filed one claim recently, avoid filing another unless it's catastrophic. Carriers view 2+ claims in 3 years as high-risk behavior.
Example: $3,000 auto damage, but you filed a claim 18 months ago → Pay out-of-pocket to avoid second claim
Rule #3: Your Premium is Already High or You're in a Non-Standard Market
If you're already paying elevated rates due to past claims, accidents, or credit issues, another claim could push you into an even more expensive market—or make you uninsurable. Protect your insurability at all costs.
Example: You're paying $2,500/year for auto (high rate) and have $2,000 in damage → Pay out-of-pocket to avoid non-renewal
Rule #4: The Damage is Cosmetic or Non-Essential
Cosmetic damage (dents, scratches, minor hail damage) doesn't affect safety or function. Filing a claim for cosmetic issues is almost never worth the rate increase. Save your claim history for real losses.
Example: $1,800 in hail damage to your car's hood and roof (cosmetic only) → Pay out-of-pocket or live with it
Rule #5: You Can Afford to Pay Out-of-Pocket Without Financial Hardship
If you have the cash reserves to cover the repair without going into debt, paying out-of-pocket is almost always the better long-term financial decision. Insurance should be for catastrophic losses you can't afford—not routine repairs.
Example: $2,500 in home damage, and you have $10,000 in emergency savings → Pay out-of-pocket
When You SHOULD File a Claim: The Exceptions
Not all claims should be avoided. Here's when you should absolutely file:
If your damage exceeds $10,000-$15,000, file the claim. Rate increases are capped, but your out-of-pocket cost isn't. This is what insurance is for.
Examples: Total vehicle loss, major fire damage, tornado/hurricane damage, serious liability claims
Always file liability claims immediately—even if the other party says they won't sue. Lawsuits can emerge months or years later. Your policy requires prompt reporting, and failing to report can void your coverage.
Examples: Auto accidents with injuries, slip-and-fall on your property, dog bites, any incident where someone threatens legal action
If damage affects your home's structure, safety systems, or habitability, file the claim. These repairs are expensive and often uncover additional hidden damage that increases the total cost.
Examples: Roof leaks causing interior damage, foundation cracks, electrical fires, major plumbing failures
If paying out-of-pocket means going into high-interest debt or depleting your emergency fund, file the claim. The rate increase is less damaging than financial instability.
Example: $5,000 in damage and you have less than $2,000 in savings → File the claim
Real Alabama Scenarios: File or Pay?
Let's walk through real scenarios we see in Alabama and show you the math:
Situation: You back into a pole in a parking lot. Damage to your bumper: $1,400. Your collision deductible: $500. No other vehicles involved.
Insurance payout: $900 ($1,400 - $500 deductible)
Rate increase: 20% for 3 years = $360/year extra on a $1,800/year policy = $1,080 total
Total cost if you file: $500 deductible + $1,080 rate increase = $1,580
Total cost if you pay out-of-pocket: $1,400
✓ RECOMMENDATION: Pay out-of-pocket. Save $180 and keep clean claim history.
Situation: Severe hailstorm damages your roof. Repair estimate: $12,000. Your homeowners deductible: $2,500.
Insurance payout: $9,500 ($12,000 - $2,500 deductible)
Rate increase: 25% for 5 years = $350/year extra on a $1,400/year policy = $1,750 total
Total cost if you file: $2,500 deductible + $1,750 rate increase = $4,250 (but you get $9,500 from insurance)
Total cost if you pay out-of-pocket: $12,000
✓ RECOMMENDATION: File the claim. Net benefit: $5,250 ($9,500 payout - $4,250 total cost).
Situation: Washing machine hose bursts, causing $3,500 in water damage. Your homeowners deductible: $1,000. You filed a wind damage claim 2 years ago.
Insurance payout: $2,500 ($3,500 - $1,000 deductible)
Rate increase: 40% for 5 years (second claim) = $560/year extra on a $1,400/year policy = $2,800 total
Risk: Carrier may non-renew you after 2 claims in 3 years, forcing you into a more expensive market
Total cost if you file: $1,000 deductible + $2,800 rate increase + risk of non-renewal = $3,800+
Total cost if you pay out-of-pocket: $3,500
✓ RECOMMENDATION: Pay out-of-pocket. Avoid second claim and protect your insurability.
Situation: You cause a 2-car accident. The other driver's medical bills are $8,000 and vehicle damage is $6,500. Total: $14,500. Your liability coverage: 100/300/100.
Your deductible: $0 (liability claims have no deductible)
Insurance payout: $14,500 (full coverage)
Rate increase: 30% for 5 years = $540/year extra on a $1,800/year policy = $2,700 total
Total cost if you file: $0 out-of-pocket + $2,700 rate increase = $2,700
Total cost if you pay out-of-pocket: $14,500 + risk of lawsuit if victim isn't satisfied
✓ RECOMMENDATION: File the claim immediately. Never pay liability claims out-of-pocket—lawsuits can exceed $100,000.
How to Make the Decision: The 3-Question Test
Before filing any claim, ask yourself these three questions:
- 1.
Is the payout more than 2x my deductible?
If no, strongly consider paying out-of-pocket. If yes, move to question 2.
- 2.
Have I filed a claim in the past 3 years?
If yes, strongly consider paying out-of-pocket to avoid a second claim. If no, move to question 3.
- 3.
Can I afford to pay out-of-pocket without financial hardship?
If yes, pay out-of-pocket. If no, file the claim—financial stability matters more than rate increases.
Why Most Agents Won't Tell You This
Most insurance agents are incentivized to process claims—not prevent them. Captive agents (State Farm, Allstate, Farmers) work for one carrier and are evaluated on customer retention and claim satisfaction. Independent agents who don't educate clients on claim strategy lose business to carriers who do.
We're different. Our job is to protect your long-term financial interests—even if that means telling you not to use your insurance. A clean claim history is worth thousands in lifetime savings. We'd rather save you money over 10 years than process a claim today that costs you more tomorrow.
This is what "They Ask, You Answer" looks like in practice. We tell you the uncomfortable truth—because that's what real advisors do.
The Bottom Line
Insurance is for catastrophic losses you can't afford—not routine repairs. If your damage is less than 150% of your deductible, you've had a recent claim, or you can afford to pay out-of-pocket, filing a claim often costs more than paying yourself.
The math is simple: a clean claim history saves you thousands over your lifetime. Use your insurance strategically—not reflexively.
And if you're not sure whether to file? Call us. We'll walk through the math with you and show you the real cost—not just the deductible.
Get Honest Advice on Whether to File a Claim
Call us before you file. We'll walk through the math and show you the real cost—including rate increases and long-term impact. No pressure, no commission on claims. Just honest advice.
Does your current insurance agent provide a written money back guarantee? TCDS does.