When it pays NOT to make an insurance claim

by Emma Lunn on 31 October 2011  |  21 comments
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In theory, insurance is there to pay out and cover your costs in the event of a mishap but in many situations making an insurance claim could actually cost you money. We take a look at when to claim and when not to.

Whether you’ve smashed a vase with over-enthusiastic swinging of the Wii remote control or dented your car bumper, deciding whether or not to make an insurance claim is not as straightforward as it might seem.

Of course unfortunate incidents and resulting unexpected costs are what you pay your insurance premiums for but a claim could mean you lose your no-claims bonus and will suffer higher premiums for years to come. So when is it worth making a claim?

The excess

A key thing to look at before making a claim is the excess on your policy. This is the amount you will have to pay yourself before the insurance kicks in.

Think back to when you took out the car or home insurance policy. Every insurance policy has a “compulsory excess” but you might have chosen to up the “voluntary excess” to lower your annual premium. So if your claim falls below this amount then it won’t be worth claiming.

When buying insurance remember not to opt for an excess level that would mean you’d struggle to pay that amount yourself.

If your claim is above the excess then it’s time to do some number crunching.

Two claims already

Many well-known home insurers, such as M&S Money and Legal & General, operate a ‘three strikes and you’re out’ approach to insurance, as we revealed in The secret rule that could cost you hundreds.

This usually means if you make three claims in three years, few high street insurers will be willing to insure you and you’ll be forced to seek specialist insurance from a broker. This is likely to be more expensive than you could get online (as you’ll probably pay the broker a fee), plus the problems you’ve claimed for before may be excluded or carry a prohibitively high excess (such as £3,000 for theft claims).

 So, particularly if you have made two claims of a specific sort - such as theft or water damage - in the last couple of years, think very carefully before you make a third.

No claims bonus

If you’ve had home or car insurance for a number of years and not made a claim you’ll have built up a no-claims bonus. When it comes to renewal, whether you stick with your insurer or shop around, a no-claims bonus will mean cheaper premiums. The bigger your no-claims bonus, the bigger the discount you’ll get.

Making an insurance claim will have an effect on the premiums you pay in the future. And if you’ve got a no-claims bonus, you might be waving goodbye to that too. Young drivers facing high premiums will be especially reluctant to lose their no-claims bonus.

The key is to do your sums and this will help you decide whether it's worth making a relatively low-value claim. You need to take into account not only the excess, but also the amount you will be paying in extra premiums before your no-claims bonus is fully restored.

Some people will be able to “protect” their no-claims bonus when they take out their policy. Car insurers typically offer this protection to people with a good driving history with several claim-free years. For an extra fee they will be able to make a claim without losing their no-claims bonus.

Rising premiums

Whether you’re a car driver or insuring your home contents, a claim can have a drastic effect on the premiums you’ll pay in the future – and whether some insurers would be willing to cover you at all.

A 22-year-old man with four-year no-claims bonus would pay £1,508 to insure a Ford Ka with More Than.  That’s a pretty high premium but if the same driver didn’t have any no-claims bonus and had made a claim for an accident that was his fault in the past year, More Than wouldn’t offer him insurance at all.

A 37-year-old woman also driving a Ford Ka with nine years no-claims bonus could get insurance with Endsleigh for £273. However, if she made an at-fault claim for £1,000 and lost her no-claims bonus the premium would shoot up to a massive £1,129 with the same insurer the following year. This jump of more than £800 would also continue to some extent in future premiums so she’d have been better off paying for the claim out of her own money.

It’s a similar story with home insurance although the difference in premiums is less exaggerated. Ensuring the contents of a two-bedroom flat in South London would cost £147 with the RAC if the householder had five-years no claims bonus. But if the same policyholder had made a £500 claim for theft in the past year the RAC would charge £329, more than twice as much.

More: Get 30% off your home insurance | Your car insurance isn’t as comprehensive as you think