When to File a Claim and When to Pay Out of Pocket

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Article Contents
Picture of By <span>Aren Mirzaian</span>
By Aren Mirzaian

Updated on February 5, 2025

Visit author page
Picture of By <span>Aren Mirzaian</span>
By Aren Mirzaian

Updated February 5, 2025

Visit author page

4 minute read

Article Contents

In Canada, auto insurance claims totalled approximately $16.3 billion in 2022,  highlighting the high frequency of accidents each year. With so many incidents occurring, you have to ask yourself: if you ever get into a car accident, should you report it to your insurer or handle it yourself? This decision requires careful consideration, as it can influence your future premiums and overall financial planning.

Filing a Claim vs. Paying Out-Of-Pocket at a Glance

  • Paying out-of-pocket has an upfront cost, but filing a claim can raise your premiums. Consider which option makes the most sense for your current financial situation.
  • Claims can affect no-claims discounts, future insurance rates, and even the resale value of your car. A single claim can increase your premiums, as it shows up on vehicle history reports and affects resale value.
  • If the repair cost is close to your deductible, paying it out of your own pocket may be smarter to protect your no-claims discount and avoid premium hikes.

Deciding whether to file a claim or cover the cost yourself can feel like a bit of a gamble. While auto insurance is there to help with unexpected expenses, it may not always be the more financially sound choice. Let’s take a closer look at the factors you should consider before coming to a decision.

Pros & Cons of Filing a Car Insurance Claim

Claiming your insurance can be a financial lifesaver when dealing with hefty repair bills for issues like engine failure or rear-end damage. However, keep in mind that filing a claim might lead to higher premiums down the road, and there’s always a chance of your claim being denied if it doesn’t meet the policy requirement.

Here’s a straightforward breakdown to help you weigh your choices:

  • Financial relief: You can use your auto insurance coverage to handle big repairs, replacements, and liability costs, giving you peace of mind when unexpected expenses pop up.
  • Access to support services: Auto insurers often connect policyholders with towing, rental cars, and claims support, making it easier to handle repairs and paperwork.
  • Legal protection: If you’re in an accident with injuries or multiple cars, filing a claim can protect you from lawsuits and cover big expenses like liability and medical bills when things get serious.
  • Possible premium increase: Filing just one claim could bump up your premium at renewal, and if you make multiple claims in a short time, it’s likely your rates will climb higher or even lead to auto insurers deeming you a high-risk applicant
  • Loss of no-claims discount: Many Canadian insurers offer discounts for staying claims-free. Some even increase that discount the longer you stay claims-free, but if you make a claim, you will lose those reduced rates.
  • Deductible expense: Even if you have a policy, you still have to cover your deductible before insurance steps in. If it’s on the higher side, filing small claims might not even be worth it.
Pros & Cons of Filing an Insurance Claim

Pros & Cons of Paying Out Of Pocket

  • Protecting your premium: Paying out of pocket helps you hang onto your no-claims discount or bonus, which means a lower chance of your rates going up at renewal time.
  • Control over repairs: It lets you pick any repair shop, haggle on prices, and choose the quality of parts without dealing with insurance limits on where to go or what to use.
  • High upfront cost: Paying out of pocket can hit your wallet hard, especially if the damage ends up costing more than you expected. After receiving an estimate, you may find that your savings aren’t enough to cover a big repair bill.
  • Potential for hidden damages: What looks like a small fix at first could turn into a bigger problem and might cost you more than your insurance deductible.
Pros & Cons of Paying out of Pocket

The Hidden Financial Ripples Of A Claim

Filing a claim might seem like the easiest solution at the moment, but it can set off a domino effect on your finances. Below is a list of major problems that you will face if you choose this path:

Future insurance rates:

Some insurers apply a surcharge that can last several years. This increase may cost more overall than a single out-of-pocket repair. Check your policy for an accident forgiveness clause, if available. It can sometimes shield you from a rate hike after your first claim.

No-claims bonuses:

In many provinces, drivers can receive a discount for maintaining a clean driving record. For each year of no claims, your discount may increase. The moment you file, you risk losing part (or all) of that bonus.

Resale value:

A claim that results in a car being designated “rebuilt” or “salvage” can significantly impact its resale price. Even less severe claims can show up on vehicle history reports like CARFAX, potentially turning off buyers.

Scenario Deep Dive: When Out-Of-Pocket Makes Sense

Auto insurance exists to cover unexpected car trouble, but it’s not always obvious when it’s smarter to pay for repairs yourself. Understanding your options can help you make an informed decision.

Here are some obvious scenarios where you might choose to bypass your policy:

Minor fender-benders:

The repair cost is lower than (or close to) your deductible. For instance, if your deductible is $1,000 but the repair estimate is $1,200, you’d only save $200 by claiming while risking a future premium hike.

Accidents with minimum damage:

Damages to your car from scrapes, small collisions with stationary objects (like a parking bollard), etc. If it’s a decorative repair, you can just pay it straight up.

Long claims-free history:

If you’ve built up years of no-claims discount, you shouldn’t exchange that with minor accidents. Bear in mind that a small repair bill might be less than the increased premiums over the long haul.

Upgrading to a brand new car:

Skip the claim if you’re planning on trading your old car soon, especially when you consider the potential impact on trade-in values vs. repair fees.

When Should You File A Claim?

While digging into your wallet is the best decision for minor incidents, you should flip the script when you face serious accidents. Below is a list of possible scenarios that could mean it’s time to file an auto insurance claim:

Significant bodily injuries from car accidents could lead to high car medical bills beyond any reasonable out-of-pocket sum.

Your policy’s liability coverage can protect you if someone else sues you for damage or medical costs.

When your vehicle is leased or financed, there’s a high possibility that the lender demands a certain level of insurance coverage. Major damages must be repaired according to the lease or finance agreement.

This is where filing a claim plays a huge role: it will help you cover hidden costs emerging from long-term damages tied to the initial incident.

Key Advice From MyChoice

  • Balance out your short-term savings with long-term costs – sometimes, a smaller out-of-pocket bill can save you from major premium hikes later.
  • You should know your deductible. If it’s high, the best decision is to handle the expense yourself.
  • Always know your no-claims status. Do the math before filing because a single claim can erase valuable discounts.
  • Following legal requirements is a must. Major accidents should be reported to both the police (when required) and your insurer.

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