Everybody knows that when insurance companies issue you a policy, they take your driving record into account. And that makes sense.
How Auto Insurance Works
Insurance companies are in the business of managing risk. That’s how they make money. They have to make sure they take in more money in premiums than they pay out in auto insurance claims in order to be profitable.
Once they sell you a policy, insurance companies are still in the same business, of course. So if your driving record takes a turn for the worse—or perhaps your newly licensed teenager commits some vehicular indiscretion—it’s a near certainty that your insurance company is going to re-evaluate the risk of covering your car and family.
Enter higher premiums.
A lot of people wonder if filing an auto insurance claim after an accident is even worthwhile.
The short answer is, you should pretty much always file a claim.
The exception, perhaps, is when someone on your policy gets into a one-car accident on your own property. Otherwise, you run the risk of having the other driver involved in the accident report it.
Roadside agreements between drivers not to file claims aren’t worth the breath they take to make them. Even when the police aren’t called to the scene.
Some injuries aren’t as immediately apparent as a broken bone or laceration. Back pain that comes on the night after an accident might make that formerly-agreeable driver rethink his commitment to you, particularly as his or her medical bills mount.
The last position you want to be in is not reporting an accident in a timely manner. For one thing, it makes it harder for your insurance company to gather evidence that might be used to defend you.
The best auto insurance companies have mighty legal teams to back you up in any lawsuit filed on account of an accident. In a worse-case scenario, your insurance company might refuse to honor your claim or even cancel your policy if you don’t report an accident as required under the terms of your policy.
Will your premiums go up after an accident? If you’re at fault, yep, sure as the sun will rise. Even if you’re weren’t at fault, your rates would rise if you lived in a no-fault insurance state.
How much your auto insurance rates will go up is a complicated question.
Insurers will take the estimated size of the claim into account when figuring out how much to raise your rates. Getting into an accident with a Ferrari driver, unfortunately, can be really bad luck. Injuries, or as hard as it is to fathom, the death of a passenger in any car, will also precipitate a serious rate hike.
If you damage any other kind of property, the cost of repairing or replacing it will also factor in. Different insurers use different algorithms to figure premium hikes due to accidents so it’s really hard to say with any authority how much your rates will go up.
That being said, we do know that insurers penalize drivers quite heavily for any significant accident. A 2017 study found that penalties in the form of higher premiums have been rising steadily. A single claim that pays out just $2000 can initiate a rate increase of more than 40%.
If you’re unfortunate enough to have to file two claims in a single year, your policy costs may even double. Those higher rates will typically follow you for about three years, assuming you don’t file any other claims during that period.
Accidents take a big bite out of your budget and so does auto insurance. We recommend calculating how much insurance you can afford before making a choice. It’s always better to make an informed choice.
How to Avoid Auto Insurance Rate Increases
Defensive driving is smart driving under any circumstances and obeying speed limits, coming to a full stop at all stop signs, and minding yellow lights are common sense habits that can protect you and your wallet.
And if you have teen drivers in your family, it’s critical that you instill good driving habits in them. Enroll them in a state-licensed driver’s education course. Set limits around how many passengers they can take in the car.
And be a good role model yourself—don’t multitask-task. And NEVER text while driving.
Stay safe out there. We recommend calculating how much auto insurance you can afford before making a choice. It’s definitely the economical thing to do.
Susan Doktor is a journalist and business strategist who hails from New York City. She writes, guest- and ghost-blogs on a wide range of subjects including finance, insurance, health, education and technology.