Should you 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 hide an accident from your insurer by paying for another driver’s auto repair costs out of pocket, 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 consumers try to avoid reporting accidents to insurers, especially following minor accidents that caused no injuries and little vehicle damage.

That’s because drivers fear that filing a 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.

However, 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.

Why you should consider filing an auto insurance claim

Walker notes that your auto insurance liability coverage — which is required in all states — can:

  • Help pay for property damage or injuries you cause while driving (up to your policy limits)
  • 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.

In addition, 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 is it OK to not file an insurance claim?

It may make sense to not contact your insurer and just pay for auto repairs 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 contact your insurer if you hit a mailbox while backing out of your own garage.

If you have 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.

Your decision about whether to use this coverage should be based on whether the cost of repairing your car is less than or comparable to the cost of your insurance policy deductible.

If the cost of repair is less or near your deductible amount, there’s generally no reason to file a claim.

Example of when it’s OK to not file a claim

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.

Collision insurance is typically sold with deductibles that range from $100 to $2,500. Typically, the higher your deductible, the less you’ll pay for car insurance. That’s because you’re assuming a greater share of the risk.

Kevin Foley, a New Jersey insurance agent, recommends choosing the highest deductible you can afford to reduce your car insurance costs.

However, reduced premium costs won’t help you if you don’t have enough money to pay your deductible when an accident occurs.

Link callout: What factors contribute to your car insurance rate?

What can you do if your rates go up?

Whether your insurance rates go up after an accident depends on your insurance company, the circumstances of the accident, and on 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. However, according to the DMV, even if you weren’t at fault, certain exceptions may apply that might cause your insurance company to increase your rate anyway, including …
    • Your company deems you statistically more likely to get into another accident.
    • You live in a no-fault state, meaning both insurance companies must pay for some of the costs.
  • 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 are 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.

If your rates do increase, you can reduce 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.

How often should I shop for car insurance?

Bottom line

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

However, 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, which is why experts and car insurance companies recommend reporting an accident with another driver as soon as it happens.

On the other hand, you can consider not filing a report if you’re involved in a non-injury accident that involves only your vehicle and property.