# Insurance Claim: Definition, How It Works, and Types

> **Definition**
>
> An insurance claim is filed by a policyholder who seeks compensation for a covered loss.

## What Is an Insurance Claim?

An insurance claim is a request by a policyholder to an insurance company for coverage or [compensation for a covered loss](https://www.investopedia.com/how-to-file-an-auto-insurance-claim-7486296) or policy event.

The insurance company validates the claim (or [denies it](https://www.investopedia.com/financial-edge/0211/what-to-do-when-insurance-companies-wont-pay.aspx)). If it is approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured.

Insurance claims cover everything from death benefits on life insurance policies to routine and comprehensive medical exams.

In some cases, a third party is able to file claims on behalf of the insured person. However, in the majority of cases, only the person(s) listed on the policy is entitled to claim payments.

### Key Takeaways

*   Insurance claims protect policyholders from financial loss.
*   The insurance company validates the claim and, once approved, issues payment to the insured or an approved interested party on behalf of the insured.
*   For property-casualty insurance, such as for your car or home, filing a claim can cause rate hikes to your future premiums.

![Insurance Claim](https://www.investopedia.com/thmb/swTgZx978MxoMwPybzEP23CcfII=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/insurance_claim.asp-final-ad2bc2c60d5c46e999bf064a90ff2dc6.png)

*Insurance as a business dates back to the 17th century. — Investopedia / NoNo Flores*

## How an Insurance Claim Works

A paid insurance claim serves to [indemnify](https://www.investopedia.com/terms/i/indemnity.asp) a policyholder against financial loss. An individual or group pays premiums as consideration for the completion of an insurance contract between the insured party and an insurance carrier.

The most common insurance claims involve costs for medical goods and services, physical damage, loss of life, liability for the ownership of dwellings (homeowners, landlords, and renters), and liability resulting from the operation of automobiles.

### Claims and the Increased Cost of Insurance

For property and casualty insurance policies, regardless of the scope of an accident or who was at fault, the number of insurance claims you file has a direct impact on the rate you pay to gain coverage (typically through installment payments called insurance premiums).

The greater the number of claims that are filed by a policyholder, the greater the likelihood of a rate hike. In some cases, it's possible if you file too many claims that the insurance company may decide to deny you coverage.

If the claim is being filed based on the damage that you caused to property, your rates will almost surely rise. On the other hand, if you aren't at fault, your rates may or may not increase.

For example, getting hit from behind when your car is parked or having siding blow off your house during a storm are both events that are clearly not due to the policyholder.

However, mitigating circumstances, such as the number of previous claims you have filed, the number of speeding tickets you have received, the frequency of natural disasters in your area (earthquakes, hurricanes, floods), and even a low [credit rating](https://www.investopedia.com/terms/c/creditrating.asp) can all cause your rates to go up, even if the latest claim was made for damage you didn't cause.

When it comes to insurance rate increases, not all claims are created equal. Dog bites, slip-and-fall personal injury claims, water damage, and mold can all act as signals of future liability for an insurer.

These items tend to have a negative impact on your rates and on your insurer's willingness to continue providing coverage.

Surprisingly, speeding tickets may not cause a rate hike at all. At least for your first speeding ticket, many companies will not increase your prices. The same goes for a minor automobile accident or a small claim against your homeowner's insurance policy.

## Types of Insurance Claims

### Health Insurance Claims

Costs for surgical procedures or inpatient hospital stays remain prohibitively expensive. Individual or group health policies indemnify patients against financial burdens that may otherwise cause crippling financial damage.

Health insurance claims filed with carriers by providers on behalf of policyholders require little effort from patients; the majority of medical are [adjudicated](https://www.investopedia.com/terms/a/adjudication.asp) electronically.

Policyholders must file paper claims when medical providers do not participate in electronic transmittals but charges result from rendered covered services.

Ultimately, an insurance claim protects an individual from the prospect of large financial burdens resulting from an accident or illness.

### Property and Casualty Claims

A house is typically one of the most expensive assets an individual will purchase in their lifetime. A claim filed for damage from covered perils is initially routed via the internet to a representative of an insurer, commonly referred to as an agent or [claims adjuster](https://www.investopedia.com/terms/c/claims-adjuster.asp).

Unlike health insurance claims, the onus is on the policyholder to report damage to a deeded property they own.

An adjuster, depending on the type of claim, inspects and assesses damage to property for payment to the insured. Upon verification of the damage, the adjuster initiates the process of compensating or reimbursing the insured.

### Life Insurance Claims

Life insurance claims require the submission of a claim form, a death certificate, and oftentimes the original policy.

The process, especially for large face value policies, may require in-depth examination by the carrier to ensure that the death of the insured did not fall under a contract exclusion, such as suicide (usually excluded for the first few years after policy inception) or death resulting from a criminal act.

Generally, the process [takes approximately 30 to 60 days](https://www.investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp) without extenuating circumstances. The payment affords beneficiaries the financial wherewithal to replace the income of the deceased or simply cover the burden of final expenses.

> **Important**
>
> Filing an insurance claim may increase future insurance premiums.

## Special Considerations

There are no hard-and-fast rules around rate hikes. What one company forgives, another won't forget. Because any claim at all may pose a risk to your rates, [understanding your policy](https://www.investopedia.com/articles/pf/06/insurancecontracts.asp) is the first step toward protecting your wallet.

### Learn What Causes Rate Hikes

If you know your first accident is forgiven or a previously filed claim won't count against you after a certain number of years, the decision of whether or not to file a claim can be made with advanced knowledge of the impact it will or won't have on your rates.

Talking to your agent about the insurance company's policies long before you need to file a claim is also important. Some agents are obligated to report you to the company if you even discuss a potential claim and choose not to file.

For this reason, you also don't want to wait until you need to file a claim to inquire about your insurer's policy regarding consultation with your agent.

### Avoid Too Many Claims

Regardless of your situation, minimizing the number of claims you file is the key to protecting your insurance rates from a substantial increase.

A good rule to follow is to only file a claim in the event of [catastrophic loss](https://www.investopedia.com/terms/f/first-notice-loss-fnol.asp). If your car gets a dent on the bumper or a few shingles blow off of the roof of your house, you may be better off if you take care of the expense on your own.

If your car is totaled in an accident or the entire [roof of your house caves in](https://www.investopedia.com/insurance/homeowners-insurance-guide/), filing a claim becomes a more economically feasible exercise.

Just keep in mind that even though you have coverage and have paid your premiums on time for years, your insurance company can still decline to renew your coverage when your policy expires.

## How Do I Initiate an Insurance Claim?

If you hold an insurance policy and have experienced damages covered by it, you can initiate a claim by contacting your insurer. This can be done by phone, and increasingly online. Once the claim has been started, the insurer will collect relevant information from you and may ask for evidence (such as photos) or supporting documentation. The insurer may also send an adjuster to interview you and evaluate the merits of your claim.

## Why Does Filing a Claim Increase Insurance Premiums?

Sometimes, filing a claim can result in [higher insurance premiums](https://www.investopedia.com/articles/pf/08/claim-raise-rates.asp) going forward. This is not always the case, as some insurers will forgive the first accident. Rate hikes following a claim occur mainly because the insurer sees you as a greater risk than before, and adjusts the cost upwards accordingly. If you can prove that a claim was made where you were not at fault, you may be able to reverse such an increase. If you file too many claims over a very short period of time, the insurance company may not renew your policy regardless of fault.

## Should I File an Insurance Claim if the Damage Is Less than My Deductible?

If the damage you experience is less than your deductible, it may not make sense to file a claim with your insurance company. For instance, if you have $200 in estimated damage, but a $1,000 deductible, it wouldn't make sense. If, however, you feel that the other party is entirely at fault and want their insurance to pay for your damage, you may want to initiate a claim nonetheless. It is a good idea to always talk with your insurance agent before filing a claim.