Editor’s Note: Forbes Advisor may earn a commission on sales made through affiliate links on this page, but this does not affect the opinions or ratings of our editors.
You are driving down a street near your home and ending at a traffic light with another car. The impact crunches the other car’s bumper, but your car is barely a scratch.
So should you settle this car accident privately – pay the damage out of pocket – to avoid notifying your car insurance or the other driver’s insurance and possibly triggering a rate increase? Well, like so many things related to auto insurance, this depends on several factors.
Is it wise
In general, solving a car accident privately – without the help of an insurance company or attorney – “would not be a very smart approach,” said Patrick Salvi, personal injury attorney, managing equity partner and chairman of Waukegan, Ill. Salvi, Schostok & Pritchard.
That can only make sense, says Salvi, if you are sure that there is only a small amount of damage and there is no chance of a claim for compensation arising.
And what amount can you afford privately? Car damage and injuries can add up quickly. “Where the line is is individually different. Those with a lot of money can afford to buy private settlements for higher amounts than those with little money, ”said Bob Hunter, insurance director for the nonprofit Consumer Federation of America.
It is common for a culpable driver to be the one to initiate a private settlement to avoid possible trouble with their insurance company or because they lack auto insurance. However, since the true extent of the damage or injury may remain unclear for a while, insurance experts warn against accepting cash for an immediate settlement without calling in drivers’ insurance.
In addition, a private cash settlement may not adequately compensate an individual for damage or injury.
Why you shouldn’t arrange a car accident privately
There are several reasons not to privately settle a car accident. Here are three of them.
Potential undetected vehicle damage
If it turns out that an accident was just a minor bend in the fender, serious damage may not be discovered until an auto repair specialist takes a look at the car.
If you’ve already paid for the accident with the other driver but haven’t notified your insurance company, you may have to pay thousands instead of hundreds of dollars to repair your vehicle damage. Why? Because your insurer was not made aware of the crash, Salvi says, and may deny a claim you file after a private settlement.
“This is not a situation you want to be in,” he says.
Possible medical problems that arise later
After the accident, the driver and passengers appear to be in good physical condition. But what if the other driver got a neck and back pain a few weeks later – after you thought everything had been sorted out in the private estate? If the neck and back pain needs treatment, the injured person can rightly ask that you pay the medical bills.
“When someone has a neck or back injury, it usually takes a couple of weeks to find out if it’s completely resolved or not,” says personal injury attorney Jack Zinda, founder of the Austin, Texas-based Zinda Law Group.
Again, if you haven’t notified your insurance company of the accident, you may be able to pay the other driver’s bills (and potentially be sued) because your insurer refuses to cover claims related to the accident.
Duty to report an accident
Auto insurers usually require you to report an accident as soon as possible. If you fail to do so, a future claim from the accident may be denied.
You can only feel comfortable not reporting an accident if the accident happened on your property, only your vehicle was involved, no one was injured, the only damaged property is yours and the repair bill is relatively low. For example, let’s say you pulled out of your driveway and rammed into your fence. In this case, it may be okay to skip notifying your insurer of the incident.
“Unless you are sure it won’t come back to haunt you – even if your neck hurts and even if you might strike the insurance company – the safest thing to do is always to cancel. even if you are certain that there will be very little damage or liability, ”says Salvi.
Remember that reporting an accident does not mean that your car insurance rates will automatically increase at the time of renewal. You face a possible tariff increase after you have submitted an accident claim, but not after you have simply reported an accident to your insurer.