Our Chicago winter this year has been a lot less like a Midwest winter–the snow storms have been few and far between. A few weeks ago we finally got hammered by a storm that dumped 10 inches over the city. At the height of the snow storm I had to pick up my son from school. As I waited at a stop sign, the driver behind me bumped into my bumper.
Luckily, the damage wasn’t bad. When I took it to a repair shop for an estimate, they thought it would cost between $580 and $1,200 to fix depending on if there was any damage inside the bumper when they take it off to repair it.
Surprisingly, the woman who hit me decided she wanted to pay out of pocket rather than go through insurance. When I told her that the repair would take 2 to 3 days and we’d need a rental car during that time, she agreed to cover that cost, too.
This is the second time I’ve been rear-ended in 5 years, and both times the repairs were less than $2,000. Both times the drivers opted to pay out of pocket.
If you’re in a minor fender bender, should you pay out of pocket rather than going through insurance?
Reasons You May Want to Pay Out Of Pocket
1. If you have a high deductible. If you have a deductible of $1,000, for example, paying out of pocket if the repair is just a few hundred dollars over that amount may make sense. You’ll save yourself from an increasing premium.
2. If your insurance premium will increase substantially. Each insurance company is different, but rest assured that if you cause an accident and file a claim, your insurance will increase. Some insurers increase your premium by 10% and others by 20%. You may be able to call your insurer and ask how much the premium will go up before you decide to pay a claim or not.
3. If this is your second accident. While you’ll pay an increased premium for one accident, if you file two claims within a few years of one another, the increase is substantial. For instance, State Farm generally charges a 10% increase in premium for the first claim, but that amount increases to 45% for the second claim. While it may hurt your budget to come up with a thousand or two to pay out of pocket for the repairs, that may be the better option if you’re facing a substantial increase that could last several years.
4. If your insurance doesn’t have an accident forgiveness clause. Some insurers offer an accident forgiveness clause, meaning, if you’ve been with the company for a certain number of years (usually 5 to 9) with no accidents, the insurance company won’t increase your premium on the first accident you file. Again, though, you may want to save this benefit for a more substantial accident that you can’t afford to pay out of pocket rather than when the repair is relatively minor.
If you cause an accident, don’t automatically file a claim. There are benefits to paying out of pocket. You just need to understand your insurance policy as well as know exactly how much the repairs will cost before making a decision.
If you’ve caused an accident, did you pay out of pocket rather than filing a claim?
Original img credit: Oops, by fortes on Flickr
Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.
I had an accident a few years ago where I was at fault. I rear ended someone at a stop light in slick conditions. Thankfully their Jeep didn’t have any damage at all, but my own car sustained $1100 in hood and bumper damage. After I got a quote at one shop (the $1100 in damage quote) I was able to find a family friend who also had a body shop and would repair the car for only $800. Since I had a $1000 deductible and I didn’t want this accident on my record, I went ahead and got the car fixed myself. We had an emergency fund just for such occasions, and we put it to use. I’m glad we paid out of pocket because our rates stayed the same, and I had nothing on my record.
We also did the same thing when my wife was hit (not her fault). The other driver ended up paying to have the damage fixed out of pocket.
Nunzio Bruno says
High deductibles and even higher premiums are definitely something to consider. It’s those kind of costs/financial restraints that are going to follow you for a few years. It’s never an easy decision but depending on the fault, the insurance policy, and if the car is even worth it – I would probably explore the costs of repairing it on my own. Happened to me recently actually, my parked car was hit in the lot of a pretty big restaurant and there wasn’t even a note. So awful but I just ate the out of pocket expense because I didn’t want my premiums to rise.
Kurt @ Money Counselor says
Just another reason to have a decent emergency fund, right? I agree, often it makes sense to pay out of pocket instead of getting insurance involved. We look at our insurance policies as coverage for catastrophes. Since that’s our perspective, we max out deductibles to keep the premiums as low as possible and pay non-catastrophic losses from our savings.
People tend to find all the possible ways to increase their deductibles to be able to save money. If paying out of pocket is a way to save more, why not consider? It’s not a very bad thing than to face increasing premiums out of your insurance policy.
This is one of those things I always wanted to know but never took the initiative to research. I’m sure there are plenty of situations where it’s better to pay out of pocket instead of going through insurance. I mean, who wants to see their insurance payment increase? Definitely not me.
Jon @ MoneySmartGuides says
I usually pay out of pocket unless it is serious enough. My deductible is $1000. If the damages are $1200, I’ll just eat the 200. But if it’s much higher, then I will take advantage of the insurance as that is what it is there for.