Filing an Auto Insurance Claim Might Not Be the Best Idea

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Your car insurance provider frequently tells you to report even the most minor car accident.  Contrary to these instructions, sometimes it’s best not to file an insurance claim.

A few years ago, I was in a minor fender bender with another car.  I admit it: the accident was definitely my fault.  But the damage was minor, and I thought I could afford the repairs out of pocket.  I exchanged insurance information with the other driver, but he agreed not to report the incidence to his insurance company.

About a week later, I paid to repair the dent in his driver’s side door.  I didn’t have to deal with an insurance agent, and I guaranteed that my insurance premium wasn’t raised.  My accident represents just one circumstance where it might be smarter, easier, and, in the long term, cheaper not to file a claim.  Let’s first look at why your auto insurance rates could increase due to a car accident.  Then we can try to sort out when not to file a claim.

What might increase your insurance rates?

Filing a claim might get you off the hook for paying for that single incident, but it likely will negatively impact your insurance rates, which can cost you dearly down the road.  Insurance companies use complex calculations to determine the rates you pay.  These are not entirely understood.  But we do know of several actions that are generally known to lead to higher insurance rates or even losing your insurance policy altogether.

If you file too many claims—or even the wrong kind of claim—your premium could go up or coverage might even be dropped.

One claim is unlikely to affect your premium, but multiple claims will almost certainly cost you, particularly if you have other driving infractions on your record.  Consulting with your insurer about whether or not to file a claim can also lead to increased rates.  Though he might seem like a nice fellow on the telephone, your insurance agent is not necessarily a trusty advisor.  Some agents are obligated to report you to the company if you even discuss a potential claim.

A car accident can be an emotionally taxing experience.  In its immediate aftermath, the tendency is to call your insurance company and have them sort out the mess.  Insurance companies try to promote this behavior by specifying that they don’t have to cover your accident if it’s not reported promptly.  Most car policies have this stipulation.

Although filing an insurance claim is often the right decision, it’s important to remember that there is no law that requires you to tell your insurer about a car accident.  As previously noted, any dealing with your insurance company can cost you money—even when you’re not at fault in an accident or don’t intend to file a claim.

When NOT to file a claim

Unfortunately, there’s no easy formula to determine whether or not to file an insurance claim.  The best approach might be to remember what purpose insurance serves—it is meant to provide protection against unaffordable, crippling costs.  That means even if you pay your insurance premiums regularly and on time, you should probably not instantly turn to your insurer following an accident.

  • If you’re in a single-car accident that involves less than $1,000 in damage, you might be better off not filing a claim.  For instance, if you back into a pole and the only damage is to your vehicle, you might want to pay for the repairs yourself and avoid facing possible insurance rate hikes.
  • If you’re at fault in an accident with another car, and the damage is less than $1,000, you might want to try to convince the other driver not to report the incident to his insurer.  It is required by law to exchange insurance information after an accident. But if you could pay for his car repairs out of pocket or even with a credit card, it might save you money in the long run by keeping your premium costs down.  You will want the other driver to get a repair estimate fairly quickly.  Estimating repair costs can be tricky, and you want to be able to file a claim within the designated time period if you underestimated the repair costs.
  • If you’re involved in an accident and the other driver is at fault, you face a trickier situation.  If you trust that the other driver will pay for your auto repairs, you might consider not filing a claim.  Remember, even if you are not at fault in an accident, filing a claim can raise your insurance costs.

When to file a claim

There are some incidents where it might be quite risky not to file a claim.  If the other driver suffered an injury in the accident, you should always file a claim.  Likely, you won’t have a choice in the matter since the other driver will almost definitely insist on telling his insurer.  If you or your passenger suffered an injury, you probably should file a claim as well.  Medical costs associated with car accidents can be unpredictable and can quickly get out of hand.

Filing a claim can result in rate hikes between 20-40%.  To save yourself from years of increased costs after a car accident, be sure to give serious thought to whether filing a claim is the right decision.

Published or Updated: March 22, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Comments

  1. patzy says:

    I was hit the other day and the person who did the damage did not stay around to ‘fess up’ or leave info, so it was a hit and run and I called my insurance agent and am going to an auto body shop tomorrow that she set up. (yes, I know I can choose who fixes my vehicle, just want to get some general info and compare to other shops).

    Your article seems to suggest avoiding insurance claims for the most part. I KNOW the damages will be around 4K which I can’t afford out of pocket and I have a great driving record. Are you suggesting my premiums will go up? On a hit and run?

  2. kevin says:

    This statement above is not all necessarily true. I run through Progressive. I was involved in some road debris back in the past. A mud flap hit my bumper at 70. It knocked out my fog light and cracked my bumper. I took it down to a progressive shop and the cost was just under my coverage of 500 to fix everything. The next time I needed to re-up my policy, my premium soared up a bit. I called progressive and asked why, and they found that the reb mistakenly filed my claim under an “At Fault” accident when it should have been No fault comprehensive claim. The saw this because of the write up on the claim. After they fixed it, they dropped my price back down to 595 for 6 months for 2 cars fully covered. Now insurance companies do use FICO scores and your financial situation for determining your premiums. Lets say you have an A or B credit score but you have many debts like cars, house, credit card’s etc and you have never missed a payment. Your debt to income ratio plays a big factor in “THE LIKELYHOOD that you will file”. Basically saying in a nice way that you are already stacked with debt, we don’t trust that you can handle out of pocket expenses because you are already stretched as it is. There are definately wierd calculations that play out in premiums though and it is definately unclear. Now not discrediting the author, this can change from company to company. Reading policy terms, as small and dry as they are, is very important. Just remember that you might find a company offering the lowest rock bottom rate, but look at their reputation on returns to their customers prior to committing to them. Sometimes the naturally high premiums can get you “No questions asked” results with quick cash in hand and great service and little to no bump in premium increase since you are already paying an inherently high premium for quality service.

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