Why Filing a Car Insurance Claim may do More Harm than Good

Most people think the purpose of car insurance is to reimburse you if your car gets damaged. If your car sustains $1,500 worth of damage from a hail storm you expect to be paid that amount minus your comprehensive deductible.

But what if the damage is a door ding in a parking lot or a cracked windshield where the damage barely exceeds your deductible? Should you file a claim to have the damage repaired?

Let’s say your windshield gets cracked by a rock driving down the highway. The cost to replace your windshield is $325 and your deductible is $250.  If you file a claim with your insurance company, you will be required to pay the first $250 of the repair bill and the insurance company will pay the remaining $75.  That sounds good, right?

But then you get your next car insurance renewal and you notice your premiums for ALL your vehicles has taken a jump from the last policy term.  The new policy will cost you $200 more per year than your old policy just because you filed a claim that cost your insurer $75!

What’s going on here? Isn’t car insurance meant to “make us whole again” after our cars get damaged?  That is the premise behind car insurance, but the problem lies in the claims free discount that many car insurance companies give their policyholders for not filing claims.

On your new policy renewal, you probably lost that discount, which could be up to 10% of the policy total. If you insure several vehicles with full coverage and have a teenage driver or two, that discount could amount to several hundred dollars every year.

So is $75 or even $300 out of pocket worth losing your claim-free status in the eyes of the insurance company. Probably not. Before filing any claims with your company you’ll want to find out if you’re currently receiving a discount for not having any recent claims. If you are, and you can afford to pay the extra repair costs (or just not fix the damage), then you’ll want to weigh your options carefully.

Obviously if the damage is significant like hitting a deer or another vehicle, then you don’t really have a choice. Insurance is there to cover you for those types of claims, especially if you have a liability claim for damaging someone else’s property.

If you view car insurance as being there for significant claims but not marginal small claims, you’ll save in the long run by keeping a spotless claim history.