Despite being the owner of a seven-year-old vehicle with a history of zero insurance claims, I am facing incremental premium hikes each year. The vehicle has been well-maintained over the years but has got several minor dents. Should I initiate a claim to repair this and offset the accumulated premium payments over the past seven years?—Name withheld on request
The main purpose of insurance is to cover any damage to the vehicle. If there are substantial damages, you should file a claim. But if these are minor, you should weigh the cost of repair against the increase in renewal premium of your car insurance.
For each year, that you don’t make a claim, you become eligible for a no claim bonus. This bonus is deducted as a discount from the ‘own damage’ premium of your car insurance. Given your claim history, you are likely to be at a 50% no-claim bonus. After you make a claim, this bonus becomes zero. Your renewal premium would then increase substantially.
Also, insurers give a special discount, relative to the erstwhile motor tariff. to offer a competitive premium.As the car becomes old, this discount comes down. That’s why your renewal premium goes up marginally each year. In the year following which the claim is made, the special discount is substantially reduced. A lower special discount clubbed with zero no-claim bonus will increase your renewal premium substantially.
Insurers are likely to reject claims for accumulated damages. For example, if your car meets with an accident on the left side, any existing damages on its right side would not be covered.
Abhishek Bondia is principal officer and managing director, SecureNow.in.
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Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.