Personal Finance

When not to file a car insurance claim

Sajja Praveen Chowdary | | Updated on: Sep 08, 2019
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Filing a claim for small amounts will not be beneficial

Accidents can occur any time, anywhere. And, when it is about mishaps related to cars, the insurance cover comes to mind.

Making an insurance claim after an accident can strip one of the benefits of the no-claim bonus (NCB) accrued on the motor cover.

It is not mandatory to file a claim and one should see how much benefit will be lost if a claim is filed. Whether to file a claim or not depends largely on four important factors — quantum of loss, impact on NCB, applicable deductibles, and future premiums. Most industry experts advice against filing a claim for smaller amounts. Here is why.

Avoid small claims

NCB is a discount normally given by insurers on the renewal premium at the end of a claim-free year. It starts at 20 per cent at the end of the first claim-free year and increases steadily with every claim-free year to a maximum of 50 per cent.

Even if a single claim is made, the NCB goes back to zero, which is another reason for not making small claims.

Further, 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. 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 little to nothing.

Consider an example. Assume that your policy has a deductible of ₹2,000 and the NCB discount works out to ₹6,000. If you make a claim of, say, ₹4,000, you will have to pay ₹2,000 of the claim bill yourself and lose the NCB discount of ₹6,000.

Here, it makes monetary sense to make a claim only if the claim amount is well over ₹8,000, say ₹13,000 plus.

This is because the outgo from your pocket plus loss of NCB discount would equal ₹8,000. So, work out the numbers and decide what you should do.

Avoid frequent claims

Further, filing insurance claims frequently can affect the claim history of the insured.

The quantum of increase in renewal premium rate that may result from repetitive claims depends on the nature of the claims and varies from insurer to insurer.

Here, the nature of the claim refers to whether the damage to the car is your fault or someone else’s (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.

If an accident is due to the fault of a third-party, the NCB on your policy is not impacted.

So, while doing your calculations, remember that the NCB discount is only given on the 'Own Damage' portion of the total premium and not on the 'Liability' portion.

Therefore, it is ideal to make a claim only 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. Discussing the claim with your insurance agent before filing also helps.

The writer is Business Head, Motor Insurance,

Published on September 08, 2019

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