There is no hard and fast rule for filing a claim and one should work out on one’s own as to how much of benefit will be lost if a claim is filed.
Whether to file a claim or not will largely depend on these four important factors – The quantum of loss, the impact on NCB, applicable deductibles, and future premiums. And most industry experts advise against filing a claim for smaller amounts. Here is why you should avoid doing this.
Impact on NCB
A no claim bonus (NCB) is a discount normally given by insurers on the renewal premium at the end of a claim-free year. This NCB starts at 20 percent at the end of the first claim-free year and increases steadily with every claim-free year to a maximum of 50 percent. Even if a single claim is made, the NCB goes back to zero, which is another reason for not making small claims.
Role of deductibles
Further, most car insurance policies specify an amount called ‘deductible’ or ‘excess’, which is the portion of any claim amount that the insured will have to compulsorily bear oneself. In case of a claim, only the balance after subtracting the ‘deductible’ amount is payable, subject to other deductions such as depreciation etc. Thus, it is pointless to claim small amounts which are close to or less than the ‘deductible’ amount specified in your car insurance policy as you would gain little to nothing.
Let us take an example. Assume that your policy has a deductible of Rs 2,000 and the NCB discount on the policy works out to Rs 6,000. In this case if you make a claim of, say Rs 4,000, you will have to pay Rs 2,000 of the claim bill yourself and also lose the NCB discount of Rs 6,000. Here it makes monetary sense to make a claim only if the claim amount is well over Rs 8,000, say Rs 13,000 plus. This is because the outgo from your pocket plus loss of NCB discount would equal Rs 8,000. However, if the claim amount is say Rs 10,000, then it may be wiser to get the car repaired at your own cost and forgo the claim. Work out the numbers and see what suits you.
Further, filing insurance claims frequently adversely impacts the claim history of the insured. The quantum of increase in renewal premium rate that may result from repetitive claims depends on the nature of the claims and also varies from insurer to insurer. Here ‘nature of claim’ refers to whether the damage to the car is your fault or that of someone else (third-party). If someone hits your car from behind, prompting you to file a claim, your rates are unlikely to be raised in normal circumstances. However, if the fault is yours and such claims are frequent, then it would probably be difficult for you to escape a rate hike.
However, if the accident is due to the fault of a third-party, the NCB on your policy is not impacted. So, while doing one’s calculations, it should be remembered that the NCB discount is only given on the ‘Own Damage‘ portion of the total premium and not on the ‘Liability’ portion.
Therefore, a good rule to follow is to only make a claim in the event of a big loss and avoid filing it in case of little mishaps, such as a minor dent on the bumper or the body of your car. Discussing the claim with your insurance agent before you file a claim also helps.