When is it worth making a car insurance claim?

Car insurance claimsIf your car is written-off or stolen you wouldn’t think twice about making an insurance claim, but what if someone leaves a dent in your bodywork that’s relatively cheap and easy to fix? It’s a simple enough question that comes with a complicated answer. Each insurance claim is unique and without the details we can’t crunch the numbers, but we can explain the costs involved in making a claim and how it could impact your premiums.

Irrespective of whether you want to pursue a claim; you’re legally obliged to inform your insurer. Check your policy details and you’ll find that failure to inform your provider could invalidate cover; leaving you seriously out of pocket when it comes to making a claim.

Sadly, the statistics aren’t on your side and claims data shows that, if you’ve been involved in one accident (even if it wasn’t your fault); you’re more likely to be involved in another. Increased risk means increased premiums, and consequently you can expect next year’s insurance costs to climb. Admittedly it might not seem fair on an individual level, but as a reflection of overall risk it’s hard to argue with the figures.

Claims Excess When you arrange insurance there’s an agreement that you’ll pay a fee towards making a claim that’s known as ‘excess’. Most providers charge a compulsory excess and allow policyholders to choose a voluntary excess as a way of keeping the cost of cover down. Choosing the right voluntary excess is something of a balancing act as setting it too high means you’re much less likely to make a claim.

You’ll find your claims excess on your policy documentation and it’s a big driving factor in calculating whether it’s financially worthwhile making a claim. If a third party is involved in the claim and they are found ‘at fault’ you should be able to recover the excess if you have legal expenses cover.

No Claims Discount Belt-up as things are about to get a little bumpy. No Claims Discounts (NCD) are arguably the most effective way to cut the cost of car insurance. Claim-free motorists are rewarded for careful driving by discounted premiums which build-up over the years. However, there’s no industry standard which explains why things are about to get a little complicated.

As a rule of thumb motorists can expect the discount earned by their NCD to fall-off after five years. On a practical level that means, whether your insurer allows you to build-up six years or nine years, the bulk of the ‘discounting’ happens in the first five years.

Following a claim, it’s the ‘industry norm’ to take two years off your NCD and then the number of claim-free years you have built-up really begins to make a difference. If you take two years off a nine-year NCD; the difference will be negligible, but if you take two years off a five-year NCD; the difference will be noticeable. To further muddy the waters some providers will start their subtractions from five years and others from four, no matter how many years NCD you have built-up, and very few start from the maximum NCD.

It’s incredibly complicated, but means that most motorists involved in a claim will have their maximum NCD reduced to two or three years. Don’t worry if you are confused; you are not alone, and we recommend calling your insurance broker to talk through the financial consequences before making a claim.

Renewal Premiums The final part of the puzzle is ‘guestimating’ how much your car insurance premiums will increase when it comes to renewal. Luckily the country’s leading consumer association Which? have been doing their homework and can help shine a light on how different incidents will hit you in the pocket.

They compared quotes from five leading insurers for an average motorist living in London (a 33-year-old driver of a Ford Fiesta costing £892 per annum) and calculated the overall impact of the claim over a three-year period.

The findings make for interesting reading with some more surprising than others. Unsurprisingly an ‘at fault’ collision with another car was the costliest (adding £610 or 23% to premiums) closely followed by the driver hitting their own wall and causing minor damage (adding £530 or 20% to premiums). More surprising was the cost of claiming for items stolen from the car (adding £514 or 19% to premiums) and the cost of being hit by another vehicle even without sustaining an injury (adding £158 or 6% to premiums).

From the above you can see that calculating whether it’s worth making a car insurance claim is more complicated than you might think, and depends largely on who’s responsible and the cost of the claim. However, it’s often said that knowledge is power, and armed with the right information, you’ll be better placed to make an informed decision.



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