Multiple reasons exist to think twice before filing an at-fault insurance claim for, say, bumper dents or some other minor damage to your car. There's a chance your policy won't be renewed if you make too many at-fault claims. Claims can also trigger insurance surcharges that make it cheaper in the long run to pay out of pocket.Here are some questions to ask yourself when considering not filing an auto insurance claim and paying for the damage yourself.
Were Any Other Vehicles Involved?
Minor single-car accidents are the best type to pay for yourself. The costs for repairs are usually the lowest. Even a minor at-fault accident usually stays on your record for three years. Ask your insurance agent how filing the claim would affect your rates. Agents may not be able to give you an exact dollar amount, but they can still place you in the ballpark. Agents will be able to review your driving record with you to see if the claim is worth filing.
Example: You accidentally scrape the side of your car against your garage. The estimate to remove the scratches is $550. Your deductible is $500. It may not be worth going through the claims process for $50 in return and a black mark on your record.
Any At-Fault Claim or Traffic Violation in the Last Three Years?
The severity of penalties increases with multiple claims and traffic violations. If you have already had a recent claim or speeding ticket, the benefit of paying a claim out of pocket increases significantly.
Example: You hit a large pothole on your way to work. It damages your tire, rim, and alignment. The cost of repair is $1,100 and you have a $500 deductible. You also filed an at-fault accident on your car insurance policy less than a year ago. Having two at-fault accidents on your record will put you up for non-renewal. You would have to get high-risk insurance until the oldest claim is more than three years old. It would be more cost-effective to pay for the pothole claim out of pocket vs. collect $600 to help with repairs.
High-risk insurance can be very expensive. It often requires switching car insurance companies. Filing two at-fault claims for a single driver within a 3-year period almost always classifies you as a high-risk driver.
Will Repairs Cost Within $500 to $1000 of Your Deductible?
It is reasonable to expect an at-fault accident to cost you up to $500 in surcharges over a 3-year period. The surcharges can be a higher dollar amount depending on coverage on your vehicles and other violations. You need to determine if you can afford the repairs on your own.
If you do file a claim, you won't need to come up with a large lump sum. You will need to pay the deductible and the surcharge will be paid overtime. The $500 over three years can be a lot easier to come up with than, say, $1,100.
Example: You decide to file an at-fault claim with a $600 payout. Your $100 surcharge for the next three years results in an increase of $300. But, six months down the line you are at-fault in a major accident with $10,000 in damages. You would definitely want to file the second claim because of the high dollar amount, but then would have been better off paying for the first claim's damages yourself. You didn’t know you would need to file a second claim, but it is something to consider when filing a smaller at-fault claim.
Are Damages Below Your Carrier's Surcharge Threshold?
Most insurance carriers allow a small amount to be paid out in an at-fault accident without surcharging. For example, many carriers have a $500 limit. Any amount paid out by your carrier under this threshold will not affect your rate.
Example: Your side mirror gets pulled off when you don’t clear the bank teller station. The repair costs $900 and your deductible is $500. After you pay your deductible, the insurance company covers the remaining $400. Because less than $500 was paid out, your insurance rate will not be affected.
However, not all insurance carriers have the same threshold for at-fault claims. It is important to check with your insurance carrier to see if a threshold is allowed.
At-fault claims are always irritating. Your first instinct might always be to file the claim. Lots of claims are a no-brainer and call for immediate filing. It is the smaller claims that bring more variables to the table. Focus on the overall cost of filing a claim vs. paying for it on your own. Often, filing the claim wins out because you can tackle the increase in monthly increments instead of coming up with a larger sum upfront.
Do You Have an Emergency Fund?
What good is it if I do not file a claim when my car is damaged? Well, car insurance is not a maintenance plan. It is of much more value when used on major accidents. Having a good-sized emergency fund ready to go can save you so much money in the long run. Minor damage to your car is a great reason to consider tapping into your emergency fund vs. filing an insurance claim. If you have the money available, consider the overall cost of filing a claim vs. covering the cost on your own.
Tips for Building an Emergency Fund
- Start small: $25 a month will add up over time
- Save your tax refund
- Save your pay raise
- Are you paid biweekly? Live on two paychecks a month and that will give you two extra paychecks per year—save them!
It is a good idea to have an emergency fund large enough to cover your insurance deductibles and beyond. There is no limit to how important an emergency fund can be to your financial well-being. Use it for emergencies only and you will thank yourself in the future.