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To claim or not to claim that is the question.....

Whether you've broken a vase or smashed in your wing mirror, deciding if you should claim the repair cost back on your insurance is a tricky business. On the one hand, there's that nagging feeling that this is what you pay your premiums for and that you deserve to get something back for your money.
On the other, there is the fear that making a claim will end up costing you more than you get back, as insurers use your claim as an excuse to hike your premiums sky high for years to come.
Working out whether or not to claim involves some serious number crunching and a basic understanding of how insurance companies will view you when you come to renew your policy months down the line. It's a balancing act and even small claims will make a difference to your premiums and it can be difficult to weigh it up.
So how much difference does a successful insurance claim really make to the policy cost? Although everyone's circumstances are different, the examples here should give you some idea of what the real cost will be. But the first thing you need to understand is how the insurers are sizing you up when you come to renew your policy, and how long the claims you make will remain on your file.
The cost of motor and home insurance differs wildly, because insurers are making all sorts of assumptions about the risk you present to them. Age and occupation come into it, and so do driving history and location (particularly in terms of home contents insurance). But insurers also use your claim history to assess how much you could cost them, and the more claims you make, the riskier they will assume you will be.

What is more, the claim you make won't just count against you when you come to renew your policy next year, it will continue to bite you for many years to come.  Most car insurance companies will look back three years when they are offering you a new insurance policy, while many home insurers go back as far as five.
There are exceptions to this, with LV= looking back for three years on home insurance, and LV= looking back five years on your motoring claims.
This could have a significant impact in the long run. For example, a 24-year-old woman with a three-year no-claims bonus who then has an accident could see her annual premium rise by nearly 50 per cent.
It is estimated that her insurance cost could rise from £482 to £710 if she made just one claim, even if she shopped around for the best policy. Over the three years when that would remain on file, this could cost her nearly £700.
With home insurance, the same problem applies. Figures showed that one accidental damage claim could push a family's insurance up £28 a year if they shopped around, but if they didn't change their policy, they would find their insurance jumped by £178.
The value of the claim you make on your home insurance is not the issue, it's the number of claims you make. This suggests that while it is worth claiming for big items, such as a major burglary, it may not be cost effective to rely on your insurance to cover a lost mobile phone.
Research shows that the cheapest policy for a typical house in Manchester would cost £191 a year without a no-claims discount. However, if you made one claim, the annual premium would rise to £210, and if you made two, the cheapest policy would be £223 a year. If you already had a no-claims discount in place, you'd lose out even more.
Someone with no claims and a three-year discount could have got similar cover for £174. That suggests that two claims on their home insurance could cost them £49 a year in premiums, or potentially £245 over the five years when the claims are taken into account.
Customers also need to consider their excess when they weigh up making a claim. Most insurance companies have a ''compulsory excess'' which you must pay towards the cost of repairs and replacement before your insurance kicks in.
For example, if you've just dropped your iPod down the toilet and you have an excess of £100, there's a real question over whether you should claim or not.
However, you can save money on your insurance by opting for a higher ''voluntary excess'' which comes on top of the basic premium. Individuals may choose to take out a higher voluntary excess if they can afford to, because it saves on the annual premium and they may find that it is not cost effective to make small claims, even with a lower excess, because it pushes premiums up.
A spokesman for the Association of British Insurers (ABI) said that people should take out insurance only to cover what they cannot afford to pay for themselves if things go wrong. "Look for a higher excess only if you can afford it and it meets your needs.
Comparison statistics suggest that more people are opting for the high voluntary excess/cheap premium route, and simply not making low value claims. The number of claims made with a value of less than £250 has declined by 10 per cent since 2008.
Advice for anyone who is currently studying the small print on their insurance policy and wondering when it is worthwhile phoning the hotline: Always think twice about making a claim – even small claims can make a big difference. Your renewal price will increase even when you shop around. Maybe you don't need that replacement item, after all.
MOTOR INSURANCE
A survey of quotes for a 24-year-old female marketing assistant living in Bristol, driving a Vauxhall Corsa with three years no-claims bonus. The top five cheapest premiums returned averaged £482.36.
If you then change the quote and add a claim (accident – driver at fault), the top five premiums returned averaged £709.56, a difference of £227.20, as well as the no-claims bonus reducing to one year. However, if the policyholder renewed with the same provider, the cost could jump up significantly. Taking the RAC as an example, the premium would be £657.67 before a claim and £950.48 afterwards, a jump of £292.81.
HOUSE INSURANCE
Looking at a home insurance scenario for a family of five living in a four-bedroom detached house in south Wales. The top five quotes for their annual buildings and contents insurance averaged out at £218.79.
If you add an accidental damage claim, worth £1,500, to this, the top five premiums average out at £246.79, a jump of just £28. However, if you were with LV= and renewed your policy after making the same claim, you would be looking at a jump of £177.80.
£482.36 average of five cheapest premiums for a 24 year-old driving a Vauxhall Corsa with three years no-claims bonus
£709.56 average of five cheapest premiums following one claim (accident, driver at fault)
£191.09 cheapest home contents insurance for a three-bedroom semi with no claims
£223.66 cheapest home contents insurance for a three bedroom semi after two claims

 

 

Richard Anthony Oakes, Sharon Linda Oakes & Ashley Burton trading as Oakes Insurance Consultants are
authorised and regulated by the Financial Services Authority. Number 307170

Registered office: Oakes House, Derby Road, Long Eaton, Nottingham NG10 1PD