A friend recently got a bit of a shock when his auto insurance came up for renewal. He discovered that his new rate was $400 higher than his old rate. He couldn’t figure out what was wrong until he remembered: He filed a minor, one person accident on his insurance. The total claim was for $500; just a few dings from a run in with his fence. He still had to pay the $500 since his deductible was $1,000, so filing saved him nothing and has ended up costing him big time.
I asked him why he filed, knowing that he’d have to pay out of his own pocket anyway.
“I thought you had to tell your insurer everything,” he said. “I thought any sort of accident had to be reported.”
He continued: “Since I had to pay and they didn’t pay anything out on me, I didn’t think they would count it against me.”
It’s certainly true that any major accident involving injuries or damage to other people’s property should be reported to your insurer, as well as the police. The risk of a lawsuit and expensive damage means that you should have your insurer on board from the get go. However, for small claims that only damage your car or property, you’re probably better off just handling the problem yourself. The same is true of home insurance claims like minor hail damage, a downed tree on a fence, or a minor theft like a stolen bicycle. If you can afford to pay for the repairs yourself or if you’ll have to pay anyway because you won’t make your deductible, then just handle it yourself.
You’re under no obligation to tell your insurer about every little bit of damage. In fact, involving them can cost you. Insurers don’t like it when you file claims, even if they don’t pay out anything. Claims, even small ones, make you seem like a greater risk. If you file every little thing, insurers get very nervous and that results in increased premiums for you. (Side note: Some even get very antsy and make a note in your file when you call to ask “what if” type questions because they’re afraid you’ve done something or are about to do something that is going to cost them money. Enough calls can trigger higher rates or a coverage drop, so ask your questions somewhere else, if possible.)
Involving the insurer is even more of a waste when, like my friend, you’re going to have to pay out of pocket anyway. You’re going to get socked with a higher premium and not get anything in return. If you involve the insurance company too often, they may even drop your coverage entirely. This is very bad because once you’re marked as a high risk customer, other insurance companies will be reluctant to take you on or they will charge you an arm and a leg for any insurance you’re able to get.
Insurance is there to cover damage and losses that you can’t handle yourself. If the damage is minor (or even if it’s pretty extensive) and you can afford to pay for repairs on your own, your best bet is to pay it and leave your insurer out of it. Only file on your insurance if you can’t handle the repair/loss yourself, or if there are other people and property involved that could make the situation tricky or lawsuit-prone. The more you can take care of on your own, the lower you can keep your insurance premiums.
One caveat: There is a difference between keeping quiet and taking care of repairs yourself and not making repairs at all. If you don’t want to notify your insurer and you try to be cheap by not making repairs at all, you could be in big trouble later. Say your roof is damaged in a hail storm. The damage is more than you can afford to fix, but you don’t want to involve your insurer so you don’t make repairs, or you make shoddy repairs. Then the rainy season comes and rain leaks into your house. Now you’ve got major damage and you want to involve your insurer. They can refuse to pay because you neglected to fix the earlier damage, leaving you vulnerable to further damage. Now you’re on the hook for all of the repairs, at debt-inducing expense to you.
You don’t have to tell your insurer everything, but you do have to use common sense. If you can’t afford the repairs or replacement, call your insurer. That’s what you’re paying them for. But if you can handle it yourself or the damage is below your deductible, just pay it, don’t mention it to your insurer, and save yourself the increased premiums.