Personal Finance

Insurance: to claim or not to claim?

  • Claim question: be guided by the deductible

Dear Dave,

How do you know when you should file an insurance claim on a homeownerís issue, versus just dealing with it and paying cash?

ó Ben

Dear Ben,

Basically, itís when you begin to feel the pain financially. Letís say you have a $1,000 deductible on your homeownerís policy. If you have an $1,100 issue, just pay the $100 out of pocket and donít mess with it. But letís say you have the same deductible and a $2,000 problem. Depending on things like your overall financial situation, the value of the house, and the cost of the insurance policy, that might just get you to file a claim.

Somehow, lots of people get the idea they can make money on insurance process. You donít. Insurance companies make money, and consumers pay insurance companies. You donít make money on insurance in the long term. You may have a situation, once in a blue moon, where you come out ahead on a transaction versus what you paid in. But over the scope of your life, you donít make money on insurance companies.

The point is this: If you turn in the claim, youíre going to experience a rate increase or cancellation somewhere ó at some point ó that offsets it. I only turn in substantial claims, meaning claims that are far above the deductible.

ó Dave

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Dear Dave,

My in-laws have inherited some money, and they want to invest in real estate. They have offered to help my husband and I buy a home, but they want ownership of some kind as part of the deal. Is this a good idea?

ó Cynthia

Dear Cynthia,

Iíd pass on this offer. Itís not a good deal.

Iím glad they got some money. I mean, thatís great for them. If they want to do some real estate investing, thatís awesome, too. If they want to give their kids a gift out of the inheritance money, that would be a very nice, generous thing to do. But no, weíre not going for a deal where they have ownership in your home. Things like that end up messy, and it wonít get you where you really want to be. Even if it does, you wonít like the trip!

If you take a deep look into this, youíll begin to understand there are some things involved that will change the nature of your relationship with your in-laws. Every time you see them and they see you, theyíll see dollar signs. Dinners together will start to taste different, and theyíll feel different, too.

Protect your relationships and your family, Cynthia. Please donít do it.

ó Dave

Dave Ramsey is CEO of Ramsey Solutions. He has authored seven bestselling books, including The Total Money Makeover. The Dave Ramsey Show is heard by more than 13 million listeners each week on 585 radio stations and multiple digital platforms. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey