You just sideswiped the car next to you in the parking lot. Quick—what do you do? Your gut reaction might be to call your insurance company. This has been drilled into you since you first purchased insurance. But it may not work for your minor collision. Sometimes, it makes more financial sense to pay for the damages out of pocket.
Once you get insurance involved, you have to pay a deductible. An auto insurance deductible is the amount you agree to pay for covered damages before your insurance company contributes towards the claim.
Let’s say your deductible is $500, and the mechanic quotes $2,500 to repair everything. You would pay the first $500, and your insurance would cover the remaining $2,000.
But what about a small repair that costs $400 to complete? Getting insurance involved doesn’t make sense at this point because they won’t cover anything less than $500.
Here’s a second question: what if you can’t afford a $400 unexpected repair?
You might be surprised by how many people would need to borrow a loan over this much. Bloomberg News reports 1 in 3 Americans don’t have $400 set aside in savings.
If you find yourself in the same boat, you can check out a financial institution like MoneyKey to learn about online loans for emergency expenses. While a company like MoneyKey can’t decide whether a loan is best for you in this situation, they can make it easy to understand the cost of the loan.
Knowing the APR, terms, and conditions can help you determine if borrowing an online loan is the right option for your out-of-pocket repair.
2. Preserving Premium Rates
Another thing you have to consider is how a claim may raise your premiums. A claim signifies to your insurer that you are a higher-risk customer, even if this is your first accident in an otherwise spotless record.
The result? They may raise your premiums. According to Investopedia, filing a claim can lead to an average premium increase of 20–40%, varying by state and the insurance company. This increase can last for several years, significantly impacting your long-term auto insurance expenses.
By paying for minor damages yourself, you avoid adding another claim to your record and maintain a lower premium rate, ultimately saving you money in the long run.
3. Liability and Timely Resolution
Unfortunately, insurance entails a lot of red tape, and getting through it all can take a long time. Most simple claims may take an average of 30 days to resolve, according to Insurance.com. However, the more complex claims and accidents may take longer. Some may take months before the investigation and negotiations wrap up.
By choosing to settle with the responsible party outside of insurance, you may save time and potential stress associated with the claims process. This allows for a swifter resolution, enabling you to repair your vehicle and move on from the incident without unnecessary delays.
Slow Down and Think Things Through
You have auto insurance for a reason, so this guide doesn’t suggest you should never use it. However, you should compare the cost of your repairs to your deductible and premiums to understand your options. Assess each situation carefully to make an informed decision.