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Does Using Car Insurance Increase Car Repair Costs?

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After a car wreck, one important question to ask is, “Who is going to pay for repairs?” When your car is seriously damaged, the answer could be an insurance company. But while paying for car repairs with car insurance doesn’t increase the cost of repairs, it does complicate the process. This article explains what to expect when you use insurance to pay for car repairs and your funding options if you want to pay for repairs out of pocket instead.

How car insurance works

If you own a car, you have to pay your auto insurance premium every month. What’s the point of making these payments? Insurance reduces the financial risk of driving a car. You pay your insurance premiums, and if you get in an accident, the insurance company may pay for costly repairs, medical expenses and damages to other people.

If a financial loss is covered, your insurer will pay for the damage past the price of your deductible. The deductible is the amount you agree to pay before the insurance company starts to pay for losses.

Losses covered by insurance companies fall into four buckets:

  • Property damage covers your damaged or stolen vehicle.
  • Liability covers the cost of car repairs or injuries for another person if you cause an accident.
  • Medical covers the cost of treating your and/or your passengers’ injuries.
  • Uninsured/underinsured motorist covers your expenses if a driver without car insurance wrecks you.

Filing a car insurance claim

Every car insurance company will have a slightly different process for filing a claim, but the overall process looks the same. These are the steps to follow once you’ve been in an accident.

  1. Be careful. At the scene of an accident, safety needs to be your top priority. If you or anyone is injured, seek medical help right away. If the injuries require immediate medical attention, call 911. Even if nobody is injured, pull to the side of the road, and set up flares or emergency cones if you have them. Approach strangers in other vehicles with caution.
  2. Call local police. Whether anybody’s hurt or any vehicle is visibly damaged, it makes sense to call the police or local highway patrol as soon as everyone is safely to the side of the road. The police will arrive at the scene of an accident and allow you to file a police report. If you don’t know the number for the local highway patrol, call 911.
  3. Collect information. At the scene of the accident, collect the names, phone numbers and insurance information of the other people in the accident. You can record this information with a pen and paper or take pictures using your phone. You’ll also want to take pictures of any possible damage.
  4. Call your insurance company. Before leaving the scene of the accident, call your insurance company’s hotline. A representative will explain all the information it needs for you to file a claim.
  5. File a police report. After collecting the necessary information, you’ll need to file a police report. If the accident is serious, you’ll want to call the police to the scene of the accident right away. Even if the damage seems minor, it’s best to file an incident report at the local police station.
  6. File a claim. Once you have an incident report and all the other information, you should have everything you need to file a claim with your insurance company. You may be able to submit the necessary documents online or you may have to call the insurance company to ask how to file the claim.
  7. Follow up. Your insurance company may need more information or documentation after you file the claim. Be sure to answer your phone and provide information as quickly as you can.

What happens after you make a claim

Filing a claim is just the first step in the insurance process. Once you file a claim, your insurance company will connect you to an insurance adjuster. Claims adjusters validate the claim and estimate repair costs.

You don’t have to accept an estimate from a claims adjuster right away. If possible, get an estimate of your own from a mechanic you trust. Then compare your estimate to the estimate provided by the insurance company.

If the estimate from your mechanic is higher, you can negotiate with your insurance company for a bigger payout.The insurance company doesn’t want to get ripped off, but it has an obligation to repair the damage to your car.

Once you and the adjuster agree to a payout, the insurance company can pay the mechanic directly, or it can send a check to you.

Will your car insurance increase car repair costs?

Using insurance to pay for car repairs should not increase the cost of the repairs. In fact, you may be able to get a discount when you work with a repair shop that is in your insurance company’s established network.

However, you can have your repairs done by a trusted mechanic rather than a mechanic in the network. Loretta Worters, vice president of media relations for the Insurance Information Institute told LendingTree, “Insurance companies will work with any shop the customer chooses to complete repairs.”

What happens if you don’t want to use insurance for repairs?

In some cases, you may not want to use car insurance to pay for repairs. For example, insurers don’t pay for regular maintenance needs. If you haven’t been in an accident, you’ll usually have to pay for necessary repairs on your own.

Even if you have been in an accident, you may prefer to pay for the repairs out of pocket. Using insurance to pay for repairs may drive up the costs of your premiums. Worters explained, “In general, when you make a claim against your insurance policy above a specific amount due to an incident that is primarily your fault, an insurer may increase your premium by a certain percentage.” Worters also explained that filing an insurance claim will generally raise your rates for three years.

However, if you’ve been in an accident, you should always report it to your insurance company, even if you plan to pay for repairs on your own. Reporting an accident to your insurance company will help you if you get sued by another person who was involved in the accident. It will also help you if you learn the repairs cost more than expected.

Paying for car repair costs out of pocket

When it comes to paying for car repairs out of pocket, paying for them can be a bit thorny. According to a 2017 study by AAA, a network of affiliate motor clubs, the average car repair bill runs between $500 to $600. The study indicated that 64 million Americans could not pay for that bill without going into debt. These findings are no surprise either. A December 2018 study from LendingTree that found that more than 50% of Americans can’t afford a $1,000 emergency.

If you’re faced with an unexpected bill of hundreds or even thousands of dollars, you have to figure out how to pay for the repair. Shopping mechanics in your area and getting quotes could help you find lower prices. But you don’t always want to choose based on price alone. Sometimes, mechanics that issue the lowest prices cut corners or don’t guarantee their service.

Instead of choosing the cheapest option, Michael Calkins, manager of technical services for AAA, recommends looking for companies with proven reputations that also offer warranties on their repairs. Service from these companies may cost a bit more, but it may be well worth it in the long run.

Options for funding car repairs

If you can’t pay for car repairs using your savings, it’s important to shop loans before you pay your bill. Consider these options:

Personal loan: A personal loan is a loan that can be used for just about anything. To pay off the loan, you’ll make equal monthly payments from 12 months to seven years or more. Many personal loans are unsecured, meaning you won’t need to use your car or other property as collateral when you take out the loan.

Interest rates on personal loans may be lower than rates on credit cards depending on your credit. Unfortunately, a personal loan is only a good option if you’re facing major repairs. Usually, you’ll need to borrow a minimum of at least $1,000, but some lenders have minimums as high as $5,000. Borrowers with poor credit may find that they only qualify for high rates on personal loans. In that case, you may need to look elsewhere for funding options.

0% interest credit card: If you’ve got excellent credit, you may qualify for a credit card with a 0% introductory offer. People that can pay off the car repair before the end of the promotional period get to enjoy interest free financing. However, 0% credit cards can also feel like a high interest trap. Unless you’re able to pay off the balance before the end of the promotional period, you may end up with a large balance on a credit card with a high interest rate.

In-shop financing: Some mechanics and car repair companies offer in-store financing. These could include basic repayment plans or credit cards. Some companies offer interest free financing for a limited period of time. Before opting for in-shop financing, be sure to read the fee disclosures and pay attention to the interest rates.

Bottom line

If you have a wrecked vehicle, your highest priority is finding a reputable mechanic who can help you get the car back on the road. Once you find the mechanic, you can decide whether to pay for repairs out of pocket or file a claim with your insurance company. Filing a claim costs less upfront, but means you may pay higher insurance premiums. Paying out of pocket means coming up with hundreds or thousands of dollars to pay a mechanic to get your car back in working order. Neither option is perfect, so you have to weigh the financial costs in your personal situation before making a decision.


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