When to File an Insurance Claim and When Not to?

when to file an insurance claim and when not to

When NOT to File an Insurance Claim?

We all hope and pray that we do not find ourselves in the need of filing an insurance claim. In fact, insurance is one of the few products/services that you purchase in hopes of never having to use it.

We want to take a magnifying glass and highlight those specific incidents whereby you may have unfortunately experienced an accident and are faced with the decision to file an insurance claim. It seems intuitive that of course you file a claim; after all, it’s essentially standard protocol after experiencing an accident. We would argue however, that if you took a step back and reviewed the benefits and associated costs of filing a claim, there are several instances in which you would choose to not do so.

Note: the principles and advice that follows refers to those insurance coverages that cover inanimate possessions (home, car, business insurance)

General Guidelines When Faced with the Decision to File, or Not to File a Claim

  1. Any accident involving the health and safety of anyone and/or animal should be coupled with filing a claim. Health related injuries can often have long tails, and symptoms could take a while to manifest themselves. As such, its best to be conservative and file a claim, even if you feel normal and fine after an accident. This is the best course of action not only because symptoms could arise at a later date, but to also have a paper trail that documents what transpired.
  2. If the damage or loss resulting from an incident is less than or relatively near your deductible value, more often than not, it’s in your best interest to not file a claim.

Cost / Benefit Analysis to File a Claim

The method of calculating rate increases that are applied to a policy after filing a claim is more art than science. It should also be noted that it’s not guaranteed that any changes happen to your policy following a claim, although this is seldomly the case.

The average rate increase for an auto policy the first year post filing a claim is typically 30%. Also, the typical auto policy endures circa three years of rate increases following a claim. Thus, the total cost of filing a claim can be assumed to be a dollar amount that could last over the course of three years. The actual amount is variable and changes from carrier to carrier and by insurance product. Alternatively, the benefit to not filing a claim is the perceived savings made through not enduring rate increases. Essentially, you should think of your decision to file a claim as an equation:

$ amount of total rate increases – $ amount spent on claim above deductible = SAVINGS

This equation will help guide your decision to file a claim or not. For example, if your deductible is $1,000, and you have a car accident which yields $1,100 in damage; although you would be spending $100 over your deductible, it’s safe to assume you would be better off by not filing a claim, given we know the first year post you filing the claim, you could experience a 30% rate increase, and rate increases for an additional two more years. Which in total, would far exceed the additional $100 spent above your deductible for the damage.

When to File an Insurance Claim?

Now that we’re armed with a lens in which to view the decision to file a claim with, let’s use it to apply to another example. Let’s use the same example from above, however, change the amount of damage. Let’s say the damage from the car accident was $50,000. Now your out of pocket cost above the deductible is $40,000. The likelihood that the total dollar amount of any rate increases endured over the next three years is remotely close to this value, are low. As a result, you’d be better off filing a claim in this scenario.

Things to Consider

We cannot reiterate enough that if any health injuries are involved in your accident; regardless of type of policy, and no matter how small you perceive the claim to be, file a claim.

For those incidents where you’ve utilized the tools we’ve discussed in this article and have concluded that you should not file a claim, but you there are multiple parties involved; try your best to settle the payment for damages outside of filing a claim. If you succeed, make sure to get in writing all participants consent to settle and confirmation that there will be no claims made regarding this specific incident.

While we here at EINSURANCE certainly hope you aren’t involved in an accident, if you are, we hope the material we’ve provided helps you navigate through the decision process regarding filing a claim.

About Dale Williams

Dale Q. Williams, MBA, is a well-respected financial executive whose experience spans from insurance to investment banking. Dale has first hand underwriting experience through working for one of the largest U.S. based insurance carriers, and advisory experience from working for several bulge-bracket and middle-market investment banks. Dale also received his MBA from University of Chicago Booth School of Business, with concentrations in finance and accounting.