Finding the right auto insurance can be…complicated. It might seem easy right? You do your research, select a policy that’s right for you, pay your premium, and boom, you’re covered. But what happens when something happens?
Easy. You have insurance so you should file a claim and let your insurance company handle it, right?
Well… not always.
It’s tempting to file an insurance claim to get your insurer to pay for car damage, but it could cost you more in the long run.
Let’s find out why.
History Lesson
Your auto insurance rate is calculated using many factors — age, location, car make and model, driving record, and claims history. In the eyes of an insurer, your claims history is viewed similar to your driving record — the more claims you have, the higher your premium will be.
Picture this: Imagine two identical drivers, same age, gender, location, car, and driving record, but one files a claim for every little ding and dent while the other pays for small damages out-of-pocket. Believe it or not, the one filing more claims will have higher rates and probably spend more in the long run than the out-of-pocket payer. When it comes to making claims, frequency breeds severity.
Now, there’s no hard and fast rule about when you should file a claim, but the more you understand your personal policy and how claims work in general, the better you’ll be able to decide when making a claim is worth it.
Have a recent fender bender?
Not Always, But Often
Filing a claim won’t necessarily cause your rates to rise, especially if the accident isn’t your fault. However, depending on the size of the claim and the other factors listed above, there’s a good chance it will affect your rates. In fact, filing a claim can lead to a 20 to 40 percent rate hike, and that rate hike stays in effect for anywhere from two to five years.
Some states have laws that make it illegal for insurance companies to raise your rate after an accident that wasn’t your fault, however, there is no law against raising your rates for having too many claims.
How many is too many? That’s up to the individual insurance company. However, regardless of who’s insuring you, any claim you make will stay on your record for up to six years. So even if your rate doesn’t go up after your first claim, any further claims you make within that window increase the odds that it will.
Deduce Your Deduction
Unless you’re legally or otherwise obligated (like when driving a company car), you should think twice before filing any claim that is less than your deductible. If your deductible is $1,000 and the damage is $900, you’ll be paying for that out-of-pocket anyway and now there’s a $900 claim on your record for the next six years. Remember, frequency breeds severity. Even if they don’t have to pay, your insurance company could raise your rate for making the claim.
So… if the damage is over my deductible, then I should file, right? Well…
Remember, a rate hike can last anywhere from two to five years. So, if you have a $1,000 deductible and the damage is $2,000, you may want to file that claim and save yourself $1,000. However, if filing the claim causes your insurer to raise your rate by $30 a month for the next five years, you’ll end up paying an extra $1,800 in premiums, more than wiping out the money you saved.
The best thing to do is to talk to your insurance agent and learn exactly what your insurer’s policies are before you need to file a claim. Take heed: Do this before you need to file a claim because some companies will raise your rate for discussing a potential claim with an agent, even if you don’t file it. Yes, for real.
When to Always File a Claim
The obvious time to always file a claim is when the damage is expensive. If your driving history isn’t completely clean, even a large rate hike won’t cost you more than several thousands of dollars worth of damage.
And while they’re called “accidents” for a reason, drive safe and do your best to avoid another one because a second incident within that three to five year window will cause your rates to leap.
Make sure to always file a claim when another driver is involved. Regardless of what it looks like, the damages could be more expensive than you realize.
Plus, when you don’t file a claim, you’re at the mercy of the other driver. They could inflate the repair costs, claim injuries, or even file lawsuits for which you could be held responsible.
When you file a claim, your insurance company handles everything from liability to injuries, limiting your costs and protecting you from future trouble.
If there are injuries, always file a claim. Again, you can’t predict what might happen due to an injury and you certainly can’t predict how other drivers or passengers will fare. Injuries to anyone of any kind can lead to big problems in the future, so be smart, play it safe, file the claim.
Another time to file a claim is when you have accident forgiveness on your policy. Remember the $2,000 claim above? If your policy includes accident forgiveness, you save that $1,000 and the claim will not hurt your premium. Of course, the claim will still be on your record so continue to drive safe, but if you’ve got it, use it!
The Last Word
It doesn’t seem right paying for something you shouldn’t necessarily use, but unfortunately, that’s how the insurance industry works. Depending on the type and frequency of your claims, even if they’re all completely legitimate, your rate can be raised or even cancelled after the claim has been paid.
Your claim history is only one part of the equation insurance companies use to determine your rate, but it’s a part of the equation you are uniquely able to control. Knowing when to file a claim can save you thousands of dollars in the long run, and knowing how different companies respond to filed claims can help you find the insurance that’s right for you.
While there’s no hard and fast rules about when to file a claim, understanding your policy and knowing your insurers practices are the best ways to prepare yourself to make that decision.
Just be sure you’re ready before anything happens.
»