Car insurance claim: File it or skip it?

Neil Bartlett

Have you ever decided against filing a car insurance claim? Maybe it was a minor collision and the claim cost was slightly higher than your car insurance deductible. You figured you’d swallow it and not take the chance that your insurance company might bump up your premium or even cancel your policy.

You’re not alone. While statistics aren't available, it’s common for motorists to skip filing a claim after a wreck, says Dana Kerr, a professor of risk management and insurance at the University of Southern Maine. “They estimate what they think the size of the loss is versus their deductible,” Kerr says.

Kerr has studied and written about the role of the “pseudodeductible” in determining whether you’ll file a car insurance claim. What's a pseudodeductible? It's an unstated dollar amount – more than the deductible in your insurance policy -- that guides your decision about whether to file a claim or to cover the loss on your own.

Where does that point occur? There is no one answer.  Given the complexity of human nature and how we make choices, it varies.

“It’s very personal,” Kerr says. “It depends on a lot of factors, including your appetite for risk.”

Making an informed choice

In some circumstances, it makes more sense to pay it yourself and not file a claim, says Amy Bach, executive director of United Policyholders, an insurance consumer advocacy group. “Your claim record has an impact on the amount you get charged for insurance,” she says.

If it’s a situation where vehicle damage is minimal, no injuries happened and no damage was done to others' property, Bach says motorists should crunch the numbers before filing a claim. Get a quote from a repair shop, and calculate how much the insurance company would pay toward repairs after your deductible is factored in.

Bach advises that you can call your agent or insurer and ask what the rules are regarding how a claim would affect your rates. Inquire about whether you’ll be "surcharged" for filing one claim during a one-year period or two claims in a two-year period.

“Companies have different rules,” Bach says. "Some will let one or two go by without imposing a surcharge, while others are quicker to ding you.”

Some states limit insurers' ability to apply a surcharge and raise your rates, while others don't.

Increasing the deductible

No matter how big or small your appetite for risk is, raising your deductible is one of the easiest ways to save money on your car insurance. Changing it from $250 to $500, for instance, can cut the cost of your optional collision and comprehensive coverage; experts say the cost of standard liability coverage wouldn't be affected. Liability coverage pays for injuries to other motorists or damage to other cars or property.

Of course, the other side of the coin is that if you experience a loss, your deductible will be subtracted from the payout for your insurance claim. So a $500 deductible or even a $1,000 deductible would be a bigger financial hit than a $250 deductible.

“You have to look at your individual or family’s financial resources,” says Michael Barry, a spokesman for the nonprofit Insurance Information Institute.

Can you, without a lot of financial stress, pay $1,000 out of your own pocket? “If you’re already operating a motor vehicle, ongoing maintenance and gas, it’s likely you have the financial wherewithal to pay a $1,000 deductible,” Barry says.

But that doesn’t mean you have to. Your car insurance agent or company can run the numbers for various deductibles.

Other ways to save

If you drive an older vehicle, consider dropping collision coverage.

“It’s usually a sizable portion of your premium,” Barry says. “A lot of agents will suggest you drop collision if your car’s value is small enough that a minor accident would total it.”

Comprehensive coverage is optional, but lenders often require drivers to pay for it when their cars are being financed. The Insurance Information Institute suggests that if a car is worth less than $1,000 or less than 10 times the insurance premium, buying collision coverage may not be worth it.

But keep in mind that you'll need both comprehensive and collision coverage to fully protect your vehicle from all types of damage. Most insurance agents will counsel against dropping comprehensive, as it represents a small percentage of your premium. Comprehensive covers threats like fire, theft and vandalism, while collision covers damage to your car if you hit another car or an object.

Barry notes that car insurance is "not for the $500 or $1,000 event, but it’s to cover an incident where costs are in the thousands of dollars."

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