Will filing insurance claim increase your premium rates?

Does this situation sound familiar to you? Ajit had a car insurance policy with one of the leading insurers of the country. He met with a minor accident some days before his policy expiry. Knowing that his policy is to expire soon or that he needs a renewal, he went ahead with the claims without any second thoughts.

The insurer approved the claims and in no time his car was repaired and looked like a net new piece. So, does Filing Insurance Claims Raises Rates: Truth or Myth?

Insurance Loading

However, when Ajit went to renew his car insurance policy, he was surprised to see the premium prices up by a substantial margin. If you have been in a similar situation with not only car insurance but several other types of insurance policies as well, it is time to understand what loading is.

The chances are high that you would have never heard of what loading is and what is its correlation with your insurance premium. Thus, the most obvious question would be, what is loading? In simple terms, loading is a buffer, or an amount added to a policy to cover up for losses which were higher than what the insurer was anticipating. This comes into the picture if an insured is prone to a certain type of risk or opts for claims regularly.

Loading and its consequences were brought into effect to ensure insurance companies are well protected against high risk individuals. Though the coverage provided to all insurers for a product would more or less be similar, the claims differ a lot. Someone whose occupation requires to take risks on a daily basis is more like to see loading. Or someone who has a lot of medical history is likely to see loading with their health insurance plan.

The concept of loading is applicable to life insurance products as well as health insurance products. As far as general insurance products are concerned, one would come across claims based loading and underwriting based loading. Post the introduction of regulations for Health Insurance in 2013, the claims-based loading concept is now obsolete.

Why is the premium rated up?

Rate up of premium or loading is not applicable to anyone and everyone. Let us consider this, all 40-year-old healthy men will end up paying almost similar or the exact same premium for their health plans. However, there could be some in that age group who are obese or have some other medical condition. Being obese for an example, means that they are prone to damages to organs or have other health related risks. Thus, the person might end up paying slightly higher premiums. This is an example of medical loading.

Premium Increase for Motor Insurance Policies:

But loading is most visible in a vehicle insurance plan. If you are someone who has made a large claim or a number of smaller claims, the chances are high that your insurer might tag you as high risk. The simple reason being, that you might have a lot of impact on their portfolio.

Though it differs from case to case basis, repeated claims on your car insurance might increase your premiums anywhere between 10% to 25%. Of course, it largely depends on your insurer, your car, the damages incurred and a few other factors.

If you are aware of a car insurance policy, you would know that NCB can help you save money on renewals. But regular claims not only keep you away from NCB and discounts but also can categorize you as a high-risk individual. This leads to higher premiums during your policy renewal. It is not uncommon for insurers to restrict certain coverage for the individual as well.

So, does Filing Insurance Claims Raises Rates: Truth or Myth?

As discussed above, filing insurance claims might increase the premium rates during the renewal. The conditions include a hefty claim or regular claims. Under normal circumstances or for minor insurance claims, you might not have to pay any loading amount.

Yet, there is a way by which you can avoid paying loading on your premiums. In the event that your vehicle has met with an accident or an incident, take some time to assess the situation rather than outright opting for insurance claims.

If the expenses incurred is nominal and you can consider paying it off from your pockets. For occurrences such as a broken rear-view mirror or minor scratch on the bonnet might not cost you much. And if you make the payment from your pockets, you get to keep the NCB bonus as well. Thus, a win-win situation for you. But if the situation calls for it, do not hesitate to claim your policy. After all, you bought the policy to help you out in the time of need.