There are several people that are afraid of telling their car insurance companies about minor car damage for they are afraid of inadvertently increasing rates. According to Insurance Information Institute, when no other person is connected, you may be tempted to remain silent about a minor accident. This brings up the question why buy insurance if you don't use it? This is not completely without a reason.

The reason is the assumption of petrified people who assume that there will be a premium increase. It is a misconception doing the rounds that filing an insurance claim is bad. At that instance people don't want to remember that insurance is there to protect them and it makes good sense to exercise their rights to use it in such situations too. What actually happens to your claim depends on who is at fault. Be warned that if it is your fault, rates could go up and you may stand to loose lose the entire coverage.

Here are some fundamental things you must know for both before and after filing a claim.

1. Get clarifications about penalties even before buying the insurance
It is best to ascertain your company's renewal guidelines ahead of buying the car insurance. It will be ideal to ask these unpleasant questions upfront while you're shopping for a policy, that way there are no surprises.

In addition, reading reviews from ‘Consumer Reports' helps find out how different insurers rate on customer satisfaction scales. This helps to identify insurance companies that renew policies before purchasing car insurance them.

2. A minor accident may not lead to dropping of a policy
A vast majority of people are able to renew their policies without problems and if there are any that are left out it has to be probably due to higher rates of claims filed which are attributable to them. Each case is different which means it is wrong to generalize, but it's unlikely that your coverage be closed exactly at your first at-fault accident. Although there is no such rule, insurance companies wait till a driver has two at-fault accidents in three years, with damages running over 1000 dollars, to face closure of coverage. Again there are preferences accorded by companies, if you are in a standard tier with higher rates you may be shown even more lenience.

The tier system is a kind of rating that insurance companies use to evaluate the probabilities that a driver will get in an accident, which is based on large statistics for a particular tier group. Drivers are grouped in tiers based on factors such as the years of driving experience, past three years' accident history and the kind of car driven by them.

However, the tier system will not restrict car insurance companies to wait for three years or a number of accidents to repeal coverages. Be warned that even a single claim could lead to abrogation of coverage. If alcohol is involved, take it for granted that you won't stand a chance. Having multiple tickets is another for possible nonrenewal, even after one accident.

3. If you're at fault, your rates may increase
Insurance companies don't immediately drop you if you are the at-fault driver, but expect to see them increase your premium but at the next renewal.

But what if you have to make a claim when have an accumulated no-claims bonus? In such cases as this, you can enjoy the no-claims bonus you have earned for each claims free years which accumulates for up to 5 years in general. This can be interpreted as a kind of give and take strategy. "If you pass years without making a claim, you get a discount and if you claim, we get cut off your discount." So it is a simple case of more the claims the more are the increases in raising rates.

4. Aren't there any other considerations
Insurance companies kind of reward your loyalty by following follow a policy of offering different policy options to different customers; the number of years spent with the same insurance company will not go waste. The company may decide to further reward you by way of ‘freebies' like no loss of coverage, no premium increase etc. However, all these things again are weighed against the number of claim-free years.

Alevoor Rajagopal, MBA, a business consultant, voices for fair practices in car insurance deals.