I used to make insurance claims every chance I got. That’s the point of insurance right? It turns tragedies into winning lottery tickets. Except that one time I got hit by lightning and lost half my brain cells; now I’m only as smart as your investment banker. Nothing makes up for that. Anyway, it turns out making insurance claims all the time might be a bad move. In this article, I look at five instances when you want to think twice before filing that claim:
1. You Could Lose Your No Claim Discount
Singaporean drivers get a No Claim Discount (NCD) for every accident-free year. The higher the NCD, the lower your premiums become.
When you get in a car accident, insurers use the Boundaries of Liability Agreement (BOLA) to assign fault. This barometer assigns fault as a percentage; as in, the accident could be 30% your fault, and 50% the other guy’s fault. Apparently, this makes sense in insurance-world (i.e. not Earth).
If BOLA determines you are more than 20% at fault, you can lose your NCD. This is a separate issue from the actual amount of your claim. So if you’ve accumulated a large NCD (up to 50%), it would be better to pay out of pocket than to pay 50% higher premiums from then on.
2. Multiple Claims Raise Your Premiums
Insurers don’t just look at the amount of your claims, they look at the number of claims. Here’s why:
Compare someone who lives dangerously, like an extreme sports addict, to someone who sits in an office all day trying to make financial news funny. Extreme sports guy files 3 – 4 claims a year, but they’re all small claims. Financial news guy files one massive claim after 10 years, when he goes blind from staring at WordPress articles.
Does that mean financial news guy lives a more dangerous lifestyle? Because his one claim cost more money? Obviously not. The guy who only files one claim after 10 years is far more cautious than the guy who files multiple claims, regardless of the amount. And insurers will respond accordingly.
When you start filing claims non-stop, your insurer’s thinking: “Damn, this is the sort of nut who backpacks across Africa with nothing but a loincloth and a can opener. Better raise his risk level to infinity + 1.”
3. The Damage Is Your Fault
Some forms of damage are preventable. If you tried amateur modifications on your house roof, for example, think twice before claiming for water damage.
Every insurance contract has an “out” for self-inflicted damage. Otherwise, I’d take out the biggest fire insurance and start playing with matches. When your insurer checks and finds “preventable damage”, or straight up negligence, you’ve shot yourself in the foot. Not only will they deny you a pay-out, they’ll also raise your premiums.
Be especially aware of this when dealing with pet insurance, or insurance for antiques. A dog’s skin problems can be blamed on the diet you feed it, and damaged antiques can be traced to improper storage. Before filing your claim, ponder if the damage was truly beyond your control.
4. You Have Recent Traffic Violations
If you have recent traffic violations, particularly for speeding, you risk more than your NCD. Your insurer may decide to raise premiums in addition to removing your NCD.
First, if you have a proven record of playing live bumper cars with your Impreza, your insurer is going to assume it was your fault. Even if, just this one time, it really wasn’t. See point 3 about this.
Second, your insurer might think you’re on the non-ACDC version of the Highway to Hell; at the rate you’re going, you’ll end up without a license, or without some major internal organs. Why shouldn’t they milk their cash cow to the limit while it’s still breathing?
5. Your Excess is High
Insurers don’t pay to the last cent. There’s an amount called the excess, which you’re liable to pay out of pocket. Depending on your premiums and your records, your excess will vary.
When deciding to file a claim, compare the cost of damages to your excess. For example: Say you spot a Lancer that’s blasting crappy Techno music. You do the natural thing and run it off the road (everyone agrees this is a fair reaction).
The total damages to your car comes to $1,500. However, your excess is $2000. Even if you make the insurance claim, you will get zilch; you’re liable to pay everything up to $2000. So there’s no point making the claim at all.
Likewise, you’d think twice about claiming if the damage was $2200. After the $2000 excess, you’d be getting a measly $200 from the insurer. As I mentioned in point 1, you risk your NCD on every accident claim; and it’s definitely not worth risking it to save $200.
Worried About Your Auto Insurer?
If you can’t make heads or tails of this insurance thing, don’t panic. Go to MoneySmart, a free website that will pick the best and cheapest car insurance for you. Just enter your car details, and you’ll be given a wide range of appropriate policies. MoneySmart also has car insurance experts, who can offer further advice.
Have you ever chosen not to file an insurance claim? Comment and tell us why!
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Tags: Car Insurance