Check whether it is Feasible to file for small claims under your Car Insurance Policy

Driving a car comes with its set of unforeseen liabilities like damaging the wing mirror while parking, mishaps on roads, etc. In the aftermath of the situation where your vehicle sustains damage, the first thought that crosses your mind is whether your car insurance policy will cover your subsequent financial liabilities.

However, you must also consider whether to immediately raise a claim or bear the expenses from your pocket. This is because car insurance policies come with adjoining clauses that allow you to maximise the benefits offered under them if you do not claim for small damages. So, let’s examine the scope of claim settlement benefits, and instances when not opting for a claim can be more beneficial.

The decision to file a car insurance claim depends on a handful of factors that you must consider. They include the following:

The Deductibles Applicable While Making a Car Insurance Claim

Deductibles are a part of claim amount the policyholder has to pay before their insurance policy covers the rest. It thus, in effect, leads to you bearing a part of damage sustained to your vehicle.

Now, if the claim amount is small, say for instance Rs. 2000 and you have you have a compulsory deductible of Rs. 2500, then you will have to pay Rs. 2000 out of your pocket while your insurance policy will cover the remaining Rs. 500. Here, the majority of the claim is being borne from your own funds.

However, in this case, you will also miss out on the No Claim Bonus benefit which would have been available to you in the subsequent year. You, as a policyholder, will consequently incur huge expenses.

The Effect of the Car Insurance Claim on NCB

NCB is a benefit that policyholders can enjoy if they complete a year without making any insurance claims. This benefit is extended as a discount on the own damage premium amount while renewing the policy in the subsequent year. The NCB accumulates each year if you do not raise claims under your insurance policy. As a result, the discount you can avail on your premium can be quite substantial after a few years.  

However, when sustaining small losses to the car, like damage to its windowpane, scratch or dent on its body, etc., making claims can wipe off benefits offered under NCB. On the other hand, if you bear the small losses on your own and do not make any claims, it helps pay less for future premiums.

Premiums Payable in the Future

As explained above, you can enjoy the benefit of discounted premium for policy renewal if you have not made claims for a particular year.

To decide on whether to go for a small insurance claim, you must compare the discounted amount with the claim amount, weigh both options and maximise your benefits accordingly.

Scenario 1 – When the Amount of No Claim Bonus is Higher than the Repair Cost

Usually, discounts extended via No Claim Bonus are offered on the premium amount payable, which ideally stands at 20% for the first no-claim year. Know that car insurance premiums comprise two components, i.e., a premium component for own damage and premium component for third party damage.

That is, total premium = Own damage component + Third party damage component

Now,  let us assume that Mr. Mehta has been driving a HYUNDAI i10 1.1 Era (1086cc) (Petrol) for the past year and his car insurance policy is due for a renewal in the upcoming couple of months. In the meantime, Mr. Mehta gets into an accident and his car sustains a few minor bumps and scratches which need repairing. 

In this scenario, Mr. Mehta should check the discount he can avail under the NCB benefit when he renews his policy, before he decides to claim against his car insurance policy for the repair work. 

Following is a table illustrating the cost break-up of Mr. Mehta’s car insurance premium:

Third party premium - Rs. 3221

Own damage premium - Rs. 2652

NCB discount - ( - Rs. 918)

Additional discount - ( - Rs. 612)

Net premium amount - Rs. 4343

GST (18%) - Rs. 782

Final premium - Rs. 5125

Therefore, if Mr. Mehta’s total repair cost is less than Rs. 918, it does not make sense for him to claim under the car insurance policy and lose out on availing the No Claim Bonus benefit.

Further, if he manages to evade making claims, he can accumulate the NCB for every consecutive year and avail a substantial discount on his premium. 

So, before making a car insurance claim for your own damage, you must compare whether your amount of repair is higher than the NCB amount.

It would be beneficial to make a claim if the repair amount is higher than NCB. However, if it is lower, you should ideally opt to bear this cost on your own instead of claiming it from your car insurer.

Scenario 2 – If the Amount of Deductible is More than the Losses Sustained

Understand it with the help of an example. Mr Mehta owns a Maruti Dzire which has sustained damages during a road accident. The amount of loss, including any spare parts needed and repair cost involved, was estimated to be Rs. 800. The insurance policy carries a clause for compulsory deductible payment at Rs. 1000. Under this circumstance, the feasibility of his claim when compared to deductibles payment, can be decided as follows:

Total losses sustained - Rs.800

Total compulsory deductible amount payable - Rs.1000

Excess deductible over losses sustained - Rs.200

For any subsequent claims, Mr. Mehta has to shell out only Rs. 200 before he can avail the benefits of the car insurance policy.

Under this scenario, it is better not to raise claims against the insurance policy. This is because he will not be able to avail the benefits of the insurance policy and the entire expense incurred for repairing his car will be paid out of his own pockets towards satisfying the deductible. Further, he will also lose out on the No Claim Bonus benefit on his insurance if he raises the claim.

Scenario 3 – If the Damage is Caused by a Third Party Vehicle

In case the accident was caused by a third party, you also have an option to go for a third-party liability claim instead of bearing the expenses under your own comprehensive car insurance claim.

For example, Mr Bhatt owns a Maruti Celerio that met with an unfortunate road accident.  However, he has sufficient proof that the accident occurred due to the fault of the third party involved. He, however, paid for the damages and made a third-party liability claim.

Under this circumstance, with all required proofs and records of payment made for vehicle repair, he stands a good chance of receiving the claim amount from the third party. It is also recommended to lodge an FIR with the nearest police station to strengthen the claim made. 

On approval, such payments will be borne by third-party vehicle insurer and will save the necessity of raising claims under one’s own comprehensive vehicle insurance. If Mr Bhatt has been receiving NCBs for a few consecutive years, a third-party liability claim is the most suitable option to save on another own damage claim and enjoy higher discounts on future premiums, which can go up to 50%.

As a bottom line to your decision for making claims of a small amount, know that every claim made is recorded by your insurer to determine the risks associated with you as a policyholder. The more claims you make, the more are the chances that you will have to pay higher premiums while renewing your policy. So, small claims must be avoided if an alternative offers improved benefits.