Should I file an auto insurance claim or pay for the damage out of pocket?

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In a Nutshell

No one wants their car insurance rates to increase because of a car accident. But if you choose to pay for another driver’s auto repair costs out of pocket instead of filing an auto insurance claim with your insurer, you could expose yourself to trouble.
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Have you ever been involved in a minor car accident and wondered whether you should report it to your auto insurance company or just pay for the damage out of pocket?

Jim Armitage, an insurance agent in Arcadia, California, says that some people try to avoid filing auto insurance claims, especially following minor accidents that caused no injuries and little vehicle damage.

That’s because drivers fear that filing an auto insurance claim will trigger an increase in their car insurance rates. Some people would rather negotiate an out-of-pocket settlement with another driver than risk higher costs, he says.

But failing to file a claim could have serious consequences in some cases. Let’s take a deeper look at what to consider when deciding whether to file an auto insurance claim.

Why you should consider filing an auto insurance claim

When you’re involved in a collision with another vehicle, you’re usually better off contacting your insurance company right away, says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.

Walker notes that auto insurance liability coverage can help cover you in a couple of ways.

  • It can help pay for property damage or injuries you cause while driving (up to your policy limits)
  • And it can help pay for your legal defense costs if you’re taken to court

If you try to reach a financial agreement with another driver on your own, you could run the risk of being sued later if the other driver discovers that the damage to their car was more extensive than they believed, Walker adds.

And if you fail to report the accident to your insurer promptly and the other driver makes a claim for related injuries or damages that crop up later, your insurer may be able to deny coverage.

Because of this, the best way to make sure you receive full coverage is to report a collision as soon as it happens.

“Car repair bills can be higher than anyone thought they would be,” Walker says. “Most of the time, it’s better to have your insurance company involved.”

When it could be OK to not file an auto insurance claim

It may make sense to forgo filing a claim and just pay the repair shop bill out of pocket if you’re involved in a minor single-car accident in which no one is injured and no one’s property is damaged but yours, Walker says.

For example, you may not need to file an auto insurance claim if you hit a mailbox while backing out of your own garage.

If your auto insurance policy includes collision coverage, it could pay to repair or replace your vehicle no matter who was at fault in the accident, once you pay your policy deductible.

When deciding whether to file a claim, consider whether the cost of repairing your car is less than or comparable to the cost of your insurance policy deductible. You’ll also want to check whether you’re required to report the accident to the insurer or your local transportation authority.

If the cost of repair is less than or near your deductible amount, and you’re not otherwise required to file a claim, it may not make sense to file a claim.

For example, if you get into a collision that causes $1,200 in damage and your deductible is $1,000, you’ll have to pay $1,000 toward repairs, with your insurance policy only covering $200. In this case, it may not be worth filing a claim if it could put you at risk for a premium increase — more on that below.

Does filing a claim increase car insurance?

Whether your insurance rates go up after an accident depends on your insurance company, the circumstances of the accident, and whether you have accident forgiveness — which is when insurers allow good drivers to get in one accident without their rates increasing.

When deciding whether to raise your rates, here are a few factors your insurance company will consider.

  • How bad the accident was — Greater damage will likely lead to a greater rate increase because the insurer must make a larger payout.
  • Who was at fault — Your rates can increase if the accident was your fault, but might stay the same if the other driver was at fault. But even if you weren’t at fault, your insurance company may still increase your rate in some states, sometimes called “no-fault” states. But this increase may not be as much as if you were at fault.
  • How much the company values you — If you’re a historically safe driver, you are cheaper for auto insurers to cover. So if your driving record is clean and you’ve been with the company for a long time, your insurance company may decide to give you a smaller rate increase compared to someone with a poor driving record.

Drivers with few or no accident claims typically get the lowest rates, because they’re perceived as good insurance risks, meaning that insurers have decided that these drivers likely won’t file a claim that an insurer will have to pay out.

What factors contribute to your car insurance rate?

What’s next?

No one wants their car insurance rates to increase as the result of a car accident.

But if you hide an accident from your insurance company by paying for another driver’s auto repair costs out of pocket, you could expose yourself to trouble later on. That’s why experts and car insurance companies recommend reporting an accident with another driver as soon as it happens.

If your rates increase after filing an auto insurance claim, you can work on reducing them over time by making sure your driving record remains clean, without accidents or traffic tickets.

You may also want to shop for a new policy regularly. Prices are competitive, and it may be possible to find an insurer who will charge you less than your current carrier.