Your car insurance might cover the bill if you’ve been in an accident, but is it worth making a claim and having them pay for the damages?
If you have been in an at-fault collision, it’s tempting to get your insurance company involved. But sometimes, you may be better off paying out of pocket. Here are four scenarios where that might be the case:
1. It’s a Minor Accident
Not all crashes are created equal. You may not have to involve insurance if you’ve accidentally backed into a lamp post or scraped your car door trying to fit into a garage.
Even accidents involving another vehicle may not require repairs, like a minor fender bender that doesn’t even scratch the paint job. If they do, they tend to be small enough you won’t have to drop a lot of cash on repairs.
2. You Have a Healthy Emergency Fund
An emergency fund is designed with this kind of collision in mind. If you’ve been squirreling away cash for a worst-case scenario, consider tapping into your savings. It might be the right course of action, especially if you have a sizable nest egg and your repairs are relatively inexpensive.
3. Borrowing Money Costs Less Than At-Fault Surcharges
Nobody plans on getting in an accident. They usually happen at the worst time, like when you’ve drained your emergency fund by taking your dog to the emergency vet.
Despite your cashflow issues, you can still opt to pay out of pocket by putting these repairs on a line of credit or borrowing an installment loan online. It depends on how a claim will affect your insurance.
Almost every insurance company will penalize at-fault accidents by adding a surcharge to your monthly premiums, increasing your rates by as much as 32%. According to one insurance specialist, you could be paying $460 more each year, for many years following your collision!
Think about how much these surcharges will cost you over time versus the rates and fees of borrowing money. If these surcharges are higher than a cash advance, you might want to visit MoneyKey for more information about lines of credit and online installment loans. If you can afford to pay what you borrow on time, you could save money in the long run.
4. Your Deductible is High
Your deductible is the amount of money you’ll have to pay out-of-pocket before your policy kicks in. Depending on your plan, you could be responsible for paying a large portion of your repairs.
Paying a large deductible only makes sense when you’re responsible for sprawling property damage and extensive medical bills. When repairs following a major accident hit six figures, even a large deductible is preferable over the total bill.
However, if your deductible means your insurance company is only paying $100–500, their payment may not be worth filing a claim that will raise your premiums by $460 for a few years.
Again, if the difference is too much for your emergency fund, you may consider putting your repairs on a cash advance.
What Will You Choose?
Cashing in on your policy isn’t free money. You might still have to pay a deductible, and your collision could raise your premiums for years to come.
Whether or not it’s worth paying this and filing a claim depends on two questions.
- How much will your claim affect your insurance?
- How expensive are the damages?
Once you have the answer to these questions, you’ll be able to figure out what your next move should be.
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