You pay car insurance premium every year to protect yourself against any financial losses arising due to damage to your car. Then one day, you meet with a small accident, and the first thing that comes to your mind is to repair the car and claim the costs from the insurance company. After all, isn’t this why you have been paying premiums every year? While it might seem like the most logical option, have you considered if it would be beneficial to not raise a claim, especially if the damage is minor and the repair costs low? In this article, we will explore this possibility and talk about factors that you must consider before raising a claim on your car insurance policy.
While every individual should consider various aspects before making this decision, here are three factors that are common across all policyholders.
- Depreciation
A car is a moving mechanical asset. It has a lot of parts that go through wear and tear due to use. Hence, the car, as well as the individual car parts, lose value over time. Insurers always reimburse the depreciated or reduced value of the car parts based on their calculations. Hence, before you initiate a claim, look at the age of the car and visit the insurer’s website to understand the terms and conditions around the calculation of the depreciated value of specific parts. This will give you an idea about how much the insurer will reimburse if you raise a claim. - Compulsory and Voluntary Deductibles
Car insurance policies have deductibles – the amount that you have to pay towards repairs before the insurer pays for the rest. The Insurance Regulatory and Development Authority of India (IRDAI) has made it mandatory for the car owner to pay a certain amount of money whenever he raises a claim. This is a compulsory deductible, and the amount is:
- ₹1000 for cars less than or equal to 1500cc
- ₹2000 for cars greater than 1500cc
The car owner can also opt for a voluntary deductible to avail of a discount in the premium amount. When a claim is raised, the car owner needs to pay the compulsory + voluntary deductible amount. Keep this figure in mind before raising a claim.
- No Claim Bonus
Insurers prefer policyholders who don’t raise claims. Hence, they offer discounts on premium rates if you don’t raise a claim during a policy period called the No Claim Bonus or NCB. Also, major insurers like Tata AIG offer incremental discounts. In other words, if you don’t raise a claim for two policy periods, then the discount improves and gets better as the period without claims increases. However, the moment you raise a claim, this incremental counter is reset to zero. In fact, many insurers offer up to 50% no-claim bonus provided certain criteria are met.
How does it all add up?
Allow us to explain this with the help of an example:
You meet with a small accident, and your car needs repairs worth ₹2000. However, your car is nearly 3 years old, and after factoring in depreciation, the claim amount comes to ₹1200.
Based on the no-claim bonus that you are eligible for AND the compulsory + voluntary deductibles, the amount you stand to lose if you raise the claim is Rs.1500.
Therefore, for a car repair worth ₹2000, raising a claim would mean a loss of Rs.300 plus the no-claim bonus incremental counter resetting to zero.
Should you go ahead with it? Your decision.
Our take – most minor claims can be counterproductive for the policy. Hence, car owners must make this decision carefully.
We understand that filing a claim is the first response to a car repair situation. However, if you consider the factors mentioned above and calculate the financial gain/loss, you will find that there are times when not raising a claim is more beneficial to you. Car insurance is designed to protect you, but that does not mean that you have to seek protection even for a minor issue. Also, if you have purchased add-ons that can get affected if you file a claim, then you must take them into consideration too.
Summing Up
So, to answer the question – Yes, it is beneficial to sometimes not raise a car insurance claim. Turning to the insurer for every small repair can increase the number of claims you file within the policy period. You must also remember that if you file insurance claims frequently, then your claim history can get negatively impacted and the insurer might increase the premium rate or even deny the renewal of the policy. Hence, it is prudent to assess various aspects before raising a claim. A recommended approach is that car owners must raise a claim only in the case of major repairs and bear the costs for minor repairs themselves.
