It may seem like a waste of money to pay insurance premiums every month, then avoid filing a claim when you actually have damage. Yet sometimes, this is exactly what you should do to save money.
The strategy of filing a claim whenever you have home or auto damage may get you more payout from insurance companies, but your insurance premiums will likely go up significantly, and you may even be dropped from coverage altogether. Both home and auto insurance companies report claims to industrywide databases, so all of the major insurance companies can see your claim history. Even if you move on to a new insurance company after filing a lot of claims, your premiums will likely be very high.
Filing a lot of claims is almost certain to cost you more in higher premiums over time than you will get from claim settlements. According to a 2015 study from InsuranceQuotes.com, a single auto insurance claim can drive your rates up 41 percent to 76 percent, and multiple claims can drive rates up even higher.
Insurance companies set your rates based not only on their assessment of your risk of having property damage, but also for the risk to them that you will file a claim. As a result, there are situations where you are better off not filing a claim with the insurance company — even if your damage is more than your deductible and you could get a payout.
1. The claim would be less than the deductible
The first thing you need to know before deciding to file an insurance claim is your deductible. The deductible is how much you have to pay out of your own pocket before the insurance company will pay to settle a claim.
For example, if your auto policy has a deductible of $1,000 and your total repair bill is $1,100, then the insurance company will only pay $100. If the total damage is $900, then the insurance company won’t pay anything, and your premiums could still go up.
There is not much point in going through the hassle of filing a claim, getting the damage appraised by an insurance adjuster, and risking higher insurance premiums if it is likely that the damage is below your deductible and you won’t get a payout anyway.
2. You have filed recent claims
Even if your claim would be more than the deductible and you would get a payout, if you have filed other recent claims, you are risking a significant increase in rates by filing another one. The average person files a claim about once every eight to 10 years, so if you file claims more frequently than average, you could be setting yourself up for higher rates.
3. There is no accident report and no injuries
For auto insurance, the payout from a small damage claim can easily be offset by the years of higher rates you’ll pay afterward. For small incidents, it can be much less expensive to simply pay to repair the damage without going through the insurance company if there are no injuries and no accident report is filed. If a police report is filed, your insurance company will likely find out about the incident whether you report it or not.
4. There is no potential for lawsuit
One of the benefits of getting your insurance company involved is to handle a potentially very expensive lawsuit. Even if your incident is minor, you may want to talk with your insurance company if you get the feeling that the other party may pursue a liability claim. If a lawsuit does not seem like a possibility based on the incident and the parties involved, this can tip the balance in favor of paying for the damage yourself without involving the insurance company.
5. You have an emergency fund
If the damage is a few thousand dollars or less, you might still come out ahead by paying out of pocket rather than filing a claim. You can avoid the risk of higher premiums for years, and getting a record that can follow you even if you look for insurance from a different provider. For example, the back window of my car shattered, and I decided to take care of this $300 repair without going through the insurance company at all.
6. Watch out for expensive home policy claims
Dog bites, water damage, and slip-and-fall claims are most likely to trigger rate increases on your homeowners insurance, according to Bankrate. Think twice before making a claim in these categories if the claim would be fairly small and you can handle the expense on your own.
7. Inquiries can make your rates go up without even filing a claim
Some insurance agents are obligated to report inquiries to the insurance company, and a mere inquiry about your coverage can be used to raise your rates due to the increased risk that you may file a claim.
You may want to investigate your coverage on your own by looking at your insurance policy and deciding whether it is worth it to call your insurance agent. You can also ask your agent if they are obligated to report the inquiry to the insurance company before you start talking about a potential claim.