Car accidents happen without any warning. The unpredictable nature of this calamity is a significant reason for car insurance. People usually buy car insurance to equip themselves and their cars to get coverage for repair damages, medical expenses, and third-party liabilities. Usually, insurance becomes something insured drivers fall back on.
The opportunity cost of filing a claim must always be weighed against the various possibilities lest filing a claim could become a cure worse than the ailment. It is usually advised not to file a claim for small damages and keep the benefits adjoining the insurance cover like the NCB (No Claim Bonus) for rainier days. In scenarios like private settlements, the costs are settled between the affected parties; you should not make a claim.
List of Situations Where Claiming the Insurance Can be a Bad Idea –
1. When the repair cost is lower than your NCB -
NCB or the No-Claim Bonus is rewarded to the policyholder for not filing a claim during a policy year. It comes in the form of discounts on the own-damage premiums paid by the policyholder if he makes no claims during the policy's tenure. The discount rate increases as the tenure advances, starting from 20% in the first year to 50% till the fifth or sixth year. These discounts can help you to save a considerable amount on your insurance costs over the tenure.
The NCB can also be carried forward to a new car you purchase and a new insurance company subject to a letter of entitlement for NCB provided by the previous insurer.
But as stated, you can only exercise these benefits if you make no claims. Hence, it is advisable to bear the costs associated with a mishap if they are less than your accumulated No-Claim Bonus.
2. If the third party is at fault -
Sometimes accidents happen with no fault of your own. Maybe it was the other person who could not hit the brakes well in time. Well, it still resulted in damage, both to his car and yours. Typically, you can go ahead with the repairs out of your pocket. On the other hand, you could activate your insurance claim resulting in the loss of your No-Claim Bonus.
But, why should you lose your No-Claim Bonus or spend out of your pocket when it wasn't your slip?
In situations like these, you have the absolute right to ask for the repair cost for damages and medical expenses for any injuries caused to you through the person's third-party liability coverage at fault. This move will not only save you a shilling but also keep your No-Claim Bonus intact. After all, a penny saved is a penny earned.
3. When deductibles come into play -
If your car insurance includes 'Voluntary Deductibles.' It is a specified amount which the policyholder has to pay out of his wallet before the insurance coverage kicks in.
Now let's assume that the voluntary deductible amount specified in the insurance policy is INR 10,000. It implies that in case of any damage, the policyholder will have to pay INR 10,000 out of his pocket before the policy cover will kick in. If so, it is ill-advised to activate the car insurance claim if the cost incurred is a little more than the value of the deductibles, say, INR 11,800. If you activate your insurance claim, you will stand to lose the much higher accrued benefit of the No-Claim Bonus. Plus, up-to INR 10,000 will be borne by you.
But, if the cost you incur is beyond the range of your specified deductible, then it is a good idea to seek the insurance claim.
4. In the case of nominal damages -
It is now needless to reiterate how filing a claim for small damages associated with minuscule costs affects the policyholder's benefits. However, here’s another reason why you must not do so - every policyholder has a claim history maintained against his account. If the policyholder makes frequent claims, the claim history will not hold merit during the insurance policy's renewal. Based on this track record, the insurer might refuse to renew your policy, and you might face issues while getting your car insured from other insurers as well.
5. Private settlements -
Accidents may also happen due to the mutual negligence of the two parties. The parties may agree to share the cost of the damages caused if the expenses incurred are not high. Many experts advise against settling privately, but they make light of the benefits of this mode of settlement. Not only does it keep your No-Claim Bonus intact, but it also saves you from all the massive paperwork that needs to be processed from the time of making a claim to its realization. It is much more convenient than making rounds to the insurance office day in and day out.
6. When your car is quite old -
There are a plethora of reasons why filing a claim for an old car can turn out to be a mistake. Old cars are susceptible to regular wear and tear, and filing a claim each time will hurt your claim history, causing problems during insurance renewals. Besides, if buying a new car in the near future seems inevitable, it is a financially sound idea to transfer the benefits accrued under the No Claim Bonus to the new car.
Another primary motive to refrain from filing a claim for old vehicles is the 'write off' clause in the insurance policy. This clause states that if the insurer reckons that the cost of repairs exceeds the salvage value of the car, they can write off the car. Alternatively put, the car ownership will transfer to the insurance company, and the policyholder will be paid an amount equal to the value of the car before the recent damage.
7. Legal exclusions -
Some situations are legally excluded from the coverage protection and you cannot redeem your coverage in such cases. A list of most common legal exclusions has been given hereunder -
· Driving under the influence of alcohol
· Wear and tear over time
· Driving without a valid driving license
· Accident in case of commercial use of a private vehicle
Remember that sometimes you can save a lot more money by paying for minor damages out of your pocket than relying on insurance coverage. The best technique to decide upon the optimal course of action is to look at each case's repairing cost.