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Car insurance: Does it make sense to file small claims?

29 December 2016
Many of us find ourselves in a situation when our vehicle is damaged. So when should you claim insurance and when should you skip it?
 
 

By Sanjeev Sinha

When Amit Sharma's new car met with an accident recently, he was unhappy but comforted by the fact that he had taken comprehensive car insurance and could get the insurer to pay for the repairs. However, a discussion with his friend put him in a dilemma. His friend advised him to skip filing a claim and instead pay for the repairs out of his own pocket because the car was not damaged badly and getting it repaired was unlikely to cost him much.

Not fully convinced, Sharma felt that as his car was insured it was surely his right to make a claim. However, he was also worried about the side effects of making a claim e.g. how would it impact his claim history and renewal premiums? Therefore, he was finding it difficult to decide.

Many of us sometimes find ourselves in a similar situation when our vehicle is damaged. So when should you claim insurance and when should you skip it?

Industry experts say there is no hard and fast rule for filing a claim. However, it is in one's own interest to do some calculations and keep some basic facts in mind while deciding whether or not to claim insurance.

"Insurance is based upon the concept of risk and simply put higher risk is bound to increase the premium. Adverse claim history is one of the factors that impact premium rates. In case of motor insurance, for instance, it directly impacts the no claim bonus, which becomes zero and thus results in a person having to pay higher premium amounts in the future," informs Sanjiv Bajaj, managing director, Bajaj Capital.

"Before filing a claim, one should assess the quantum of loss, applicable deductibles, any impact on the NCB and future premiums if any and should proceed only then," says Dr Sandeep Dadia, CEO & Principal Officer, Aditya Birla Insurance Brokers Ltd.

In fact, experts advise against filing a claim for small amounts for several reasons.

Most car insurance policies specify an amount called 'deductible' or 'excess' which is the portion of any claim amount that the insured will have to compulsorily bear himself/herself. In case of a claim, only the balance after subtracting the 'deductible' amount is payable subject to other deductions such as depreciation etc. Thus, it is pointless to claim small amounts which are close to or less than the 'deductible' amount specified in your car insurance policy as you would gain very little or nothing.

A no claim bonus (NCB) is a discount normally given by insurers on the renewal premium at the end of a claim-free year. This NCB starts at 20% at the end of the first claim-free year and increases steadily with every claim-free year to a maximum of 50%. Even if a single claim is made, the NCB goes back to zero, which is another reason for not making small claims.

Let us take an example. Assume that your policy has a deductible of Rs 2000 and the NCB discount on the policy works out to Rs 6000. In this case if you make a claim of, say Rs 4000, you will have to pay Rs 2000 of the claim bill yourself and also lose the NCB discount of Rs 6000. Here it makes monetary sense to make a claim only if the claim amount is well over Rs 8000, say Rs 13000 plus. This is because the outgo from your pocket plus loss of NCB discount would equal Rs 8000. However, if the claim amount is say Rs 10,000, then it may be wiser to get the car repaired at your own cost and forgo the claim.

However, while doing one's calculations, it should be remembered that the NCB discount is only given on the 'Own Damage' portion of the total premium and not on the 'Liability' portion.

Further, filing insurance claims frequently adversely impacts the claim history of the insured.

Experts say that filing one or two claims over several years is unlikely to make much of a difference. However, "apart from increasing the premium rates, insurers can even deny the renewal of your policy if there are continued losses year after year on the insured risk or there is no due diligence observed by the insured to avoid the repeated losses," says Bajaj.

The quantum of increase in renewal premium rate that may result from repetitive claims depends on the nature of the claims and also varies from insurer to insurer. Here 'nature of claim' refers to whether the damage to the car is your fault or that of someone else (third party). If someone hits your car from behind, prompting you to file a claim, your rates are unlikely to be raised in normal circumstances. However, if the fault is yours and such claims are frequent, then it would probably be difficult for you to escape a rate hike.

Therefore, a good rule to follow is to only make a claim in the event of a big loss and avoid filing it in case of little mishaps, such as a minor dent on the bumper or the body of your car.

Sometimes talking to your insurance agent about the insurance company's policies before you file a claim also helps.

Source: Economic Times

 

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