Knowing when to claim and when not to claim is very important. Sometimes you come across advice stating that you should not report an accident to your insurance company if you do not intend making a claim. The advice might say that you don’t need to tell your insurer if the damage is less than your deductible, or if you don’t have collision coverage under your policy, or if you have decided to pay for the damage yourself so that the claim will not increase your insurance premiums. Such advice is almost always unsound.
When to Claim
Firstly, it is important to make a distinction between notifying your insurance company of an incident and filing an insurance claim. Insurance policies invariably require policyholders to notify the insurer of all events which may give rise to a claim, as soon as practicable, but they do not require you to file a claim. If you are involved in an incident and you do not notify your insurance company right away, you give the insurer grounds to avoid payment of any claim which you subsequently make, or which another party subsequently makes against you.
Those grounds tend to increase in proportion to the length of time which you allow to elapse before notifying the insurer. For example, if you wait three days before reporting an accident, the insurer might simply remind you of the need to notify them immediately next time, but still pay the claim anyway. However, if you do not report the accident for six weeks, the insurer will likely avoid any claim. The advantage of notifying the insurer right away is that you will have fulfilled that obligation under the insurance policy, and you now have plenty of time to assemble all relevant information and to submit a claim, if in fact you choose to follow that course.
The major risk in failing to notify your insurer is that another party involved in the accident subsequently files a lawsuit against you which you did not expect. Many car crash injuries, for example, only come to light sometime after the accident, either through delayed symptoms or through later diagnosis of an injury which a person was completely unaware of.
For example, say you rear end another car which was stopped at a red light. You cause minor damage to the car you hit, so minor that you think it isn’t worth telling your insurance company about it. You figure that the damage is about the same or less than your deductible, and that if you notify the accident to your insurer you would get nothing but an increase to your insurance premiums. The person in the car you hit is not injured, she is nice about it and she is happy to have you pay the repair bill directly. She even feels sorry for you.
Six weeks later you get registered mail from her attorney. It turns out she suffered headaches for 10 days after the accident, and after seeing her doctor she was diagnosed with whiplash injuries to her neck which will take months to heal, not to mention extended time off work. She is a stock analyst with a high paying job, and she is now looking to you to pay all her medical bills, all her lost wages, and compensation for her pain and suffering as well. She expects that your insurance will pick up the tab, so she has no concerns about claiming everything she is entitled to. You nervously file a claim with your insurance company, and guess what? They don’t want to know, but only for the reason that you didn’t want them to know.
The tragedy of all this is that, had you notified your insurance company right away but still decided to pay the repair bill directly and not file a claim, your insurance premiums would have been unaffected. Sure, the accident would have been added to your insurance record, but that’s all. It would not have resulted in higher premiums because it did not result in a claim. And it would not have resulted in your insurance company avoiding payment of the claim being made against you, including payment of all those defense costs you now face.
So, by all means choose whether or not you wish to file a claim for any incident which occurs, but always notify your insurer as soon as practicable so that your insurer is unable to avoid paying the claim on the grounds that you breached the terms of the agreement between you.
What about filing a claim after you have notified? There are limited instances where you would be better off meeting any repair or other costs out of your own pocket rather than filing a claim. The following are just two examples where this would be the case:
Before you file a low-value claim, find out from your insurance company what effect the claim would have on your premiums. Don’t file if the amount you would get paid is less than the sum of the annual premium increases which would result from the claim. That is, don’t file if:
(Claim Amount – Deductible) ≤ (Premium Increase x No. of years of Increased Premium)
Note that some insurers, based on your time and history with them, and subject to the amount of your claim, allow you one at-fault claim before they will increase your premium rates.
As a final cautionary word, if you are involved in an accident be very careful when paying for damage to another person’s property or car out of your own pocket, or agreeing to do so. That can reasonably be construed as an admission of liability, and if a more serious claim comes out of the woodwork later, such as for injury, you could be left with a weak or no defense.