One of the common beliefs regarding vehicle insurance is that policyholders can avoid rate increases if they refrain from making claims or receiving traffic tickets. Consequently, many policyholders choose to pay for minor damages out of pocket to prevent facing higher premiums. However, they may be surprised to find that their car insurance rates still go up despite their efforts and expenses. This can lead to disappointment and questioning the benefits of avoiding claims altogether.
While it is true that accidents, claims, and traffic violations play a significant role in calculating automobile insurance premiums, they are not the sole determining factors. Keeping your claim count low can indeed improve your insurability and rates, but it does not guarantee immunity to premium increases. When an individual has an excessive number of claims, accidents, or tickets, some insurers might decline policy renewal or offer much higher quotes.
Furthermore, making claims for damages that you can easily afford to pay out of pocket is likely to result in increased premiums for those claims and potentially other reasons as well. This is why many motorists opt to avoid claiming for every minor scratch and dent, as they are aware of how insurance companies can penalize them for frequent claims.
Why Car Insurance Go Up Even If You Don’t Make Claims
Often motorists start with very high premiums when they buy their first automobile insurance policies because often people start driving and insure their vehicles at a young age, they have no insurance history, lack driving experience, don’t have long driving history and they may not even have a good credit score. As time passes, they start building history and pass their teenage years and for that reason they may see their premiums coming down gradually for a long time.
Naturally, this gives an impression that as long as they don’t make claims, their premiums will keep going down. That is why they are surprised to see that their car insurance premiums are still going up regardless. Here are some of the reasons why your premiums may first stop going down and start going up later:
- No more discounts: After a while, auto insurers run out discounts to offer to motorists with no claims and clean driving records and they may already be placed in the lowest risk tier and getting the best rates. Then, every little change that affects vehicle insurance rates is noticeable as premiums increase.
- Increasing prices: Unfortunately, over time prices of everything changes including vehicle repair costs, wages, rents and other things that increase the overheads for insurers. Even if you don’t make any claim, your policy still offers you coverage for the insured damages and injuries. So, insurers always take into account that they may have to pay for a claim you will make in the future. Therefore, if the claims are costing more to insurers, they have to charge you enough to make sure they can pay for your claims down the line.
- Increasing risks: Despite being a profitable policyholder thus far due to your claim-free record, you remain susceptible to specific risks such as vandalism, auto theft, and other crimes. Consequently, if these criminal activities are on the rise in your area, vehicle insurance underwriters must factor in the possibility that you could become a target one day. Similarly, an increase in the number of uninsured drivers or the frequency of injury claims in your region also demands the attention of underwriters, as they must consider the potential for future losses, even if they haven’t paid any claims for you thus far.
- External influences: Changes in the state laws and general economic conditions impact automobile insurance companies and they usually pass the costs to customers, even though they hardly ever pass the savings to the customers.
- Seniors: Despite your impeccable track record of not making any claims for the past thirty years and driving less each year, it is common for most car insurance carriers to raise your rates after a certain age, typically around 70. This is because they perceive an increased risk and the possibility of age-related driving issues. Auto insurance underwriters consider your past history when determining premiums, but they also carefully assess future risks and the likelihood of potential claims.
- Changes in your details: Life moves on whether you realize or not and you make changes to your policy. They may be subtle changes and you may have moved only a couple of blocks away recently but all these little things affect your rates.
- Deteriorating credit score: Credit score is another influential factor and taken into account in vehicle insurance premium calculations by nearly all insurers in most states. So, if your credit score is dropping, it may explain the premium increase.
If Car Insurance Will Increase Anyway, Should I Make Claims?
Motorists often find themselves disheartened by the frequent premium increases, believing that they are bearing the burden of mistakes and claims made by other drivers, leading to higher rates. Consequently, some may contemplate refraining from paying out of pocket and decide to file claims the next time they experience damages. However, policyholders rarely gain an advantage over their insurers in this way. The more claims they make, the higher their premiums are likely to rise. Furthermore, excessive claims within a short period can even lead to difficulties in finding coverage.
Consider this scenario: You noticed a minor scratch on your car, likely caused by someone keying it, and decided to file a claim this time. You received a small payout after paying your deductible. Later, your car suffered weather-related damage, which wasn’t significant, but you thought, “Why should I pay for it out of pocket when I have insurance?” So, you filed another claim and received another small payment after the deductible.
Unfortunately, the situation took a turn when you were involved in an accident, and this time, it was your fault. There were damages and injuries to third parties. Now, you have no choice but to make a claim for your own damages, and you will also face third-party claims against you.
All of a sudden, you find yourself with three claims filed in a relatively short period, putting you at risk of being dropped by your insurer at the next renewal. You’re aware that your premiums will become considerably more expensive due to these three recent claims, regardless of which car insurance company you approach.
This example serves as a cautionary tale, highlighting the potential hazards of being overly eager to make claims on your auto insurance for every minor damage, even when you could have easily paid for them out of pocket. For instance, those scratches might have been easily buffed off, but instead, you chose to opt for an expensive paint job since insurance was covering the cost.
Choosing to avoid claims remains an effective strategy to keep your premiums low and reduce the risk of encountering difficulties when seeking vehicle insurance. Another perspective on this matter is that motorists strive to secure the most affordable car insurance premium during each renewal. They do so by actively reviewing and eliminating unnecessary coverage, opting for higher deductibles to obtain lower rates, and diligently comparing various insurers to find the most competitive option.
For instance, if you adopt the mindset of handling most minor damages out of pocket and reserving claims for significant damages, consider increasing your deductibles to maximize potential savings.