How do I know when to claim my car insurance ?

Posted in May 2018 | 759 views

Car Insurance

Driving a car in India is ride full of potholes. And we don’t mean the literal ditches you experience in every by lane. Maneuvering the do’s and don’ts of car insurance norms are enough to put your head in a tizzy. How you ask?

Picture this scenario: Your brand new car has met with a minor accident. A speeding motorbike has broken your right fender mirror leaving the remnant hanging and in desperate need of car repair. Since all vehicles nowadays are covered by comprehensive car insurance, should you claim this? There is no simple answer. The truth of the matter is that there are no clear guidelines for filing a claim for car repair. But industry wisdom states that it makes sense to claim car insurance only when the invoice amount is more than Rs.10,000. This, of course, is based on some underlying assumptions and it maybe in one’s interest to do some calculations and keep basic facts in mind before submitting a claim.

Insurance is inherently a financial product based on the concept of risk. Higher number of claims for accidents & repairs are an indication of higher risk which in turn increase the premium. Going forward, unfavourable claim history is one of the factors that impact premium rates. Car insurance service providers can even deny the renewal of your policy if there are repeated claims on the insured risk and additional caution is not observed by the insured.

Another component of car insurance policies to consider is an amount called 'deductible' or 'excess'. The deductible amount of any claim is by definition the part of the bill that the policyholder has to pay himself/herself and is calculated as per the specification in the car insurance policy. Once the deductible has been subtracted, the insurance company foots the remaining part of the insurance claim. Hence, if the insurance claim is small or close to negligible, it would be counter-intuitive to claim the small amount and increase the subsequent insurance premium payable.

There is also the case for the ‘no claim’ bonus that you get awarded at the end of every year if you don’t claim any damages. This NCB incentive starts at 20% of premium payable at the end of the first claim-free year and goes up to a maximum of 50% by maintaining a no-claim record. Hence, when you claim petty car repair bills in motor insurance, like dent & paint repair, it directly impacts the no claim bonus, which becomes zero for the year and increases premium amounts in the future. Let’s illustrate how the No Claim Bonus works with an example. Let’s say that your car insurance has a deductible clause of Rs 3000 per claim and the NCB discount on the premium is about 9000 per annum. So if you make a claim for a dent & paint repair bill of Rs 4000, you’ll be able to claim only 1000 Rs from insurance and lose the NCB of Rs 9000 at the year-end. Hence, it makes sense to make an insurance claim if the claim amount is well over the deductible and no claim bonus put together, which in this case is Rs 3000 plus Rs 9000.

Therefore, a thumb rule is to claim damages only in the event of a major accident and to avoid filing claims for petty expenses