Filing Insurance Claims Raises Rates - Truth or Myth ?

Insurance plans are protective shields that customers can procure so as to protect themselves from uncertainties. In times of economic uncertainty such as these, it is imperative for customers to have a safety shield and insurance plans serve this purpose. There are a number of insurance plans that customers can procure, for various requirements such as health, auto, life and so on.

Auto Insurance plans are a necessity today. With the number of people traveling in cars or their own two wheelers, the chances of risk are also high. Auto Insurance comprises of two types - ‘Third Party Liability’ and ‘Comprehensive’ car insurance . Third party liability insurance is mandatory for all vehicles. Under this policy, the insurance company provides cover for damages caused to another person’s vehicle by the insured. Comprehensive insurance policy offers cover for the insured’s vehicle.

The whole point of procuring an insurance policy is so that customers need not worry about costs arising due to accidents and related damages. But, does filing insurance claim actually result in the increase of premium rates?

Yes, it does

Insurance policies are based on the concept of risk. The higher the risk, higher is the premium amount to be paid. Therefore, filing insurance claims increases the amount to be paid. Statistically, those who file for claims once may do so again and again thereby increasing the risk factor for insurance companies.

In case of auto insurance especially, filing claim history has a direct impact on the no claim bonus offered by most companies. Filing for a claim results in the no claim bonus becoming nil and the customer having to pay a higher premium the following year.

However, the whole point of having an insurance policy is lost, isn’t it?

No, it is not

Customers can make claims but must be careful in doing so. Before doing so, policyholders must assess factors such as the impact on no claim bonus, deductibles, quantum of loss and so on. Filing claims for smaller amounts should be avoided at all costs. This is for several reasons.

Deductible refers to the claim that has to be borne by the customer himself. In case the customer files a claim, then the amount resulting after subtracting the deductible will be paid. The final amount paid by the insurance company will also result in factors such as depreciation. Hence the amount paid will be quite less and the customer will not gain anything in return and is therefore a loss for him/her.

The no claim bonus is provided on renewal of insurance at the end of a year if no claims have been made. It generally begins at 20 percent and increases every year to 50 percent. However, even if a single claim is made, this discount goes to zero. This factor is another reason why customers are advised not to make claims for small amounts.

In addition to the above, filing claims can have a negative effect on the claim history of policyholders. Although one or two claims may not make a significant difference, more can result in higher premiums or the insurance company’s refusal to renew the plan if there are heavy losses.

However, customers must note that this increase in premium amounts is also dependent on other factors. This includes nature of claim, i.e if the damage to the car was a fault of the insured or another person. If it is not the fault of the insured, then rates may not increase but this is again subject to the company’s decision.

Therefore, in order to avoid the increase of premiums or other negative impact, it is advisable for customers to file for auto insurance claims only in the case of a significant loss and if they cannot afford to pay for the damages. By doing so, customers can avoid paying a higher premium every year. They can also avail the no claim bonus and not come across as a high risk client for insurance companies. Although insurance companies exist for the purpose of financial protection, there are other risk factors involved. Hence, it is prudent for customers to verify all their options and file for claims only when it is absolutely necessary.

GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017

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