Is it ever worth it to pay out of pocket instead of going through insurance?
Yes, sometimes it is in your best financial interest to pay a claim out of pocket, especially when the collision is minor and you aren't anywhere near meeting your deductible. Insurance companies will only cover costs once you exceed your deductible, so it can be worth it to pay out of pocket instead of going through insurance. Then only time you shouldn't pay out of pocket is when other drivers and vehicles are involved in the accident.
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Jeff Root
Licensed Insurance Agent
Jeff is a well-known speaker and expert in insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading fina...
Licensed Insurance Agent
UPDATED: Jun 23, 2023
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Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Jun 23, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
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You’ve been in an accident – but you’re not sure whether you want to make an insurance claim. Should you pay for your claim out of pocket and avoid your insurance company entirely? Or is this a bad idea doomed to cost you more money in the long run? Today, we’re explaining everything you need to know about paying out of pocket versus going through your insurance company.
Yes, It’s Sometimes in your Best Interests to Pay a Claim Out of Pocket
To start, let’s make one thing clear: it’s sometimes in your best financial interests to pay a claim out of pocket.
In many cases, if the collision is minor and didn’t involve any other people, then you have no real incentive to make an insurance claim.
Remember: you’ll need to pay a deductible on your insurance claim. If it’s going to cost $100 to repair the chips in your windshield and your deductible is $500, then it’s not worth it to make an insurance claim.
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Talk to your Insurance Company About Whether You Should Make a Claim
Your insurance company can help you decide whether you should pay out of pocket or make a claim. Some drivers hesitate to tell their insurance company about every incident – say, a minor collision. However, your insurance company can help you decide how much repairs will cost and whether the cost of repairs will exceed your deductible.
The only time it’s a bad idea to talk to your insurance company is if you have a reason to deliberately hide information from them. If you’ve filed multiple at-fault claims before, for example, and you’re worried about your insurance policy getting canceled, then you might want to avoid reporting it to your insurance company.
Overall, it’s important to ask several questions before you pay for a claim out of pocket.
Questions to Ask Before Paying for a Claim Out of Pocket
If you’re debating whether or not to pay a claim out of pocket, then it’s crucial that you ask yourself several questions, including:
Were Any Other Vehicles or People Involved?
It’s perfectly fine – even normal – to take care of single car accidents out of pocket. With a single vehicle collision, the repair costs are usually the lowest. Plus, reporting the accident might cause your rates to be higher for 3 or 5 years.
Let’s say you accidentally scraped the side of your car against your garage, and the cost of repairing the scratch is less than the cost of your deductible. In this case, you might want to avoid reporting the incident to your insurance company.
However, you may be legally required to report the incident if another driver was involved. Most states require you to report all incidents that result in more than $1,000 in damages, for example.
In general, it’s a bad idea to pay out of pocket for any claim involving another driver, people, or property. There are too many things that can go wrong – even if the other driver is honest. Things can get even worse if the other driver is dishonest. Full medical and repair costs might not be revealed for weeks after the accident.
Have You Filed an At-Fault Claim in the Last 3 to 5 Years?
Insurance companies will typically raise rates after a single at-fault claim. Your rates will stay high for 3 to 5 years. However, if you file multiple at-fault claims over a 3 to 5 year period, then your insurance rates could become prohibitively expensive. In some cases – say, if this is your fourth or fifth at-fault claim – your insurance company could even cancel your policy.
If you’ve recently filed an at-fault claim, then you might wish to pay out of pocket even if the cost of repairs exceeds your deductible. Repairs might cost $1,000, for example, and you might pay a $500 deductible. However, your insurance rates will be higher for 3 to 5 years, and the long-term effect will cost you more than $500.
Ultimately, if reporting a collision is going to make you a high-risk driver in the eyes of your insurance company, then you might want to pay out of pocket.
Does the Cost of Repairs Exceed your Deductible?
In general, you should consider paying out of pocket any time the cost of repairs is less than your deductible. If your deductible is $500 and the repairs are $250, for example, then you should probably avoid making a claim – that part is obvious.
However, it may be in your best interest to pay out of pocket when the repairs exceed the cost of your deductible. In some situations, it’s in your best interests to pay out of pocket if the repairs are within $500 to $1,000 of your deductible.
The reason is related to your higher insurance rates. If you’re going to pay $50 more per month for car insurance for 3 years (36 months), then you need to take that cost into account along with the upfront cost of repairs.
Do You Have an Emergency Fund?
If you have an emergency fund, and the incident was minor, then you may not need to dip into your insurance to cover the costs of the incident. Use your emergency funds and save yourself the hassle – even if your repairs are slightly more expensive than your deductible.
Conclusion
Yes, sometimes it’s worth it to pay out of pocket instead of filing an insurance claim. For any claims involving other people or other vehicles, it’s generally a bad idea out of pocket. However, for single vehicle claims and minor damage, it’s often in your financial interest to pay out of pocket.
Frequently Asked Questions
When should I consider paying out of pocket instead of using insurance coverage?
There are a few scenarios where it may be worth considering paying out of pocket instead of going through insurance:
- Low-cost repairs or services: If the cost of repairs or services is relatively low and falls within your budget, paying out of pocket may be a simpler and faster option, as it eliminates the need to file a claim, pay deductibles, or potentially face increased premiums.
- Maintaining a clean claims history: If you have a history of filing numerous claims or have recently made several claims, it might be beneficial to pay out of pocket to avoid further impacting your claims history. This can help maintain lower insurance premiums in the long run.
- Avoiding the hassle of filing a claim: Filing an insurance claim can involve paperwork, documentation, and potentially waiting for approvals. If the cost of the incident is manageable and you prefer to avoid the administrative burden, paying out of pocket could be a viable alternative.
What factors should I consider before deciding to pay out of pocket?
When contemplating paying out of pocket instead of using insurance, it’s essential to consider the following factors:
- Cost comparison: Compare the estimated out-of-pocket expense with the deductible and potential premium increase that may result from filing a claim. If the cost difference is minimal, using insurance might be more advantageous.
- Type of incident: Evaluate the nature of the incident. If it’s a minor incident with minimal potential impact on future premiums, paying out of pocket might be reasonable. However, if it involves significant damage or liability, utilizing insurance coverage could provide greater financial protection.
- Coverage implications: Consider your insurance policy’s terms and conditions. If the incident would lead to a loss of specific coverage or affect your eligibility for future claims, it might be better to involve insurance.
- Personal financial situation: Assess your ability to handle the financial burden without insurance assistance. If paying out of pocket would cause significant strain on your finances, it’s advisable to utilize your insurance coverage.
Are there any drawbacks to paying out of pocket instead of using insurance?
While paying out of pocket may have its advantages in certain situations, it’s important to be aware of the potential drawbacks:
- Loss of financial protection: By not involving your insurance, you forfeit the financial protection your policy provides. If an incident leads to extensive damages or liability, you could be solely responsible for the costs.
- Missed opportunities for coverage: Depending on your policy, certain incidents or types of damages may only be covered by insurance. Opting to pay out of pocket might mean losing out on reimbursement for expenses that could have been eligible for coverage.
- Impact on claims history: Filing an insurance claim doesn’t always result in increased premiums, but paying out of pocket helps maintain a clean claims history. However, if the incident could have been covered by insurance and you later need to file a claim for a different incident, the lack of previous claims may not necessarily benefit you.
Can my insurance company help me decide whether to pay out of pocket or make a claim?
Yes, your insurance company can assist you in evaluating the costs and benefits of paying out of pocket versus making a claim. They can provide insights into repair costs, deductible amounts, and the potential impact on your insurance rates.
Do insurance rates increase if I make an at-fault claim?
Yes, insurance rates typically increase after an at-fault claim, and the higher rates can last for a period of 3 to 5 years. Multiple at-fault claims within a few years may result in even higher rates or potential policy cancellation.
Will paying out of pocket affect my insurance coverage in the future?
Paying out of pocket for a claim that you could have filed with your insurance typically doesn’t directly impact your coverage. However, it’s important to note that insurance companies consider your claims history when determining premiums. If you have a history of multiple claims, your insurer may view you as a higher risk and potentially increase your premiums.
Can I change my mind and file a claim after paying out of pocket?
Once you decide to pay out of pocket, it’s generally not possible to change your mind and file a claim for the same incident. Insurance companies usually require prompt notification of claims, and retroactively filing a claim could lead to complications or denial of coverage. It’s best to assess the situation thoroughly before making a decision.
Compare over 200 auto insurance companies at once!
Secured with SHA-256 Encryption
Jeff Root
Licensed Insurance Agent
Jeff is a well-known speaker and expert in insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading fina...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.