The whole point of auto insurance is that it helps pay for damages—to people, to vehicles, to stationary objects like fences and stop signs—if you’re involved in an accident.
There are a lot of moving parts in auto insurance—how policies are priced, what is covered and what isn’t, and how claims impact the policy. Understanding some of the ins and outs can help you become a better insurance consumer.
The Question of Fault
So you’re in an auto accident and you’re worried about whether your insurance rates are going to go up. As with so much in life (and insurance), the answer to this question is, “It depends.” The most important consideration is whether you’re found to be “at fault” in the accident. (This is handled somewhat differently in no-fault states. See below for an explanation.)
This is why the police should always be called to the scene of an auto accident. The responding officers take statements and interview witnesses. In more serious cases they’ll measure skid marks and diagram the accident scene down to the last glass fragment. After their investigation, they’ll make a determination regarding who caused the accident. Usually, one or more drivers are given traffic citations. The fault might be assigned entirely to you, or it might be given to the other driver. Sometimes the fault is split—60/40, for example, or 80/20—which means both drivers are at fault and will need to file a claim. State laws vary on how this is calculated.
In minor accidents, such as a fender-bender in a parking lot, police may not need to be called, but the parties involved should still exchange insurance information. In such a case, the insurance companies will work together to determine fault and handle the claim(s).
If the other driver is found to have caused the accident, his or her insurance company will generally assume responsibility for the property damage and medical expenses resulting from the crash. On the other hand, if you’re determined to be entirely or primarily at fault for the accident, your insurance company will end up paying for any medical and property damages.
Surcharges, Discounts and Non-Renews
If you’re found to be at fault after an accident, you’ll continue paying the same rate until it’s time to renew your policy. Then, it’s likely that you’ll see a rate hike in the form of an accident surcharge. Additional accidents and you’ll see even higher rates.
In addition, if you had a clean driving record when you purchased a policy and then you have an accident, the accident could affect you even if you weren’t found to be at fault. If you were in a “preferred risk program,” your company is likely to reclassify you into a lower category. This could result in a pricing change when your policy renews.
You could even find your insurance cancelled (or “non-renewed”) if you have several accidents within a relatively short time period. It’s all about risk, and some companies have a lower tolerance for risk than others.
A Few Exceptions
Fault is an important factor in deciding who pays for an accident—and whether your rates go up. So what happens if you’re in a two-car accident and the other driver is determined to be at fault … but the other driver doesn’t have insurance? This is when your uninsured motorist coverage kicks in. If you’re not sure whether you have this type of coverage, talk to your agent today. Uninsured motorist coverage can be added to your policy for just pennies a day.
What if you’re in a state like Florida with low liability minimums? (Florida is a 10/20/10 state, which means a driver with minimum coverage has only $10,000 of coverage for property damage.) If somebody with Florida minimum insurance driving a $500 beatermobile crunches into your $30,000 Audi, the balance of the damage would be covered by your under-insured motorist coverage. Again—you’d need to add under-insured motorist coverage to your policy ahead of time. Otherwise, you’d have to try to sue the other driver or simply pay for the damages yourself.
In either case, you have to have the extra insurance to be covered. And in both cases—even though you weren’t responsible for the accident—it’s likely that you’d lose your “accident free,” “good driver” or “claims free” discounts on your policy, which will cause your premium to go up.
(By the way, insurance experts estimate that about 13% of all drivers nationwide are driving without insurance. In some states—Oklahoma, for instance—estimates of uninsured drivers are twice the national average. Yikes!)
Things get even stickier if you’re involved in a hit-and-run accident. In most states, the damages to your vehicle would be covered by your uninsured motorist coverage. But some states (California, Colorado, Georgia, Illinois, Louisiana and Ohio) actually prohibit uninsured motorist coverage from being used after a hit-and-run. If you have collision coverage and uninsured motorist coverage, it’ll likely cover your damages if the fleeing driver is never identified.
It’s also possible for you to make a claim in which you were not at fault, but you’ll end up paying a higher premium because of it. Road debris claims, for example, generally don’t carry any fault. But making a claim for repairs caused by road debris can trigger a rate increase. Ultimately, if you file a claim, you can expect a rate increase.
Some states have passed laws that place limits on how much an insurance company can raise rates, or thresholds below which rates can’t be raised. For example, your state may have a law stating that your insurer can’t raise your rates if the total damage in the accident is lower than $2,000. The practical impact of this kind of law is to cause insurers to raise rates slightly for everybody in the state (and to encourage repair shops to make sure that just about every covered repair costs at least $2,000 to fix).
Talk to your independent insurance agent if you have questions about the auto insurance laws for your particular state.
A few states (currently 12) have “no-fault” insurance laws. In no-fault states, injuries resulting from an auto accident are covered by each driver’s insurance company—regardless of who caused or contributed to the accident. No-fault coverage is also known as “personal injury protection” or “PIP.” No-fault laws purport to protect both consumers and insurance companies by providing a liability shield, restricting lawsuits for many or most accident injury cases.
Notice the emphasis on “injury.” No-fault insurance is generally restricted to personal injury claims resulting from auto accidents, so property damage is handled separately. In a two-car crash in which drivers and passengers are injured in both vehicles, the injured in each car would be covered by the insurance policy of each individual driver. But the drivers could still sue each other (or each other’s insurance companies) for the damage to their vehicles and for bodily injury beyond the personal injury limits. Or they could make a claim against their own collision coverage, for their vehicle, if they have it.
The no-fault rules don’t mean that your insurance premiums can’t still go up after an accident. It’s basically up to your insurance company, usually determined by the amount they are paying out in the claim.
If you live in one of the no-fault states, it’s worth talking with your independent agent about what happens if you’re involved in an accident. As of this writing, the current no-fault states include Colorado, Florida, Hawaii, Kansas, Kentucky, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Dakota, Pennsylvania, and Utah.
Many major insurers have something called “accident forgiveness”—you’ve probably seen the TV commercials. Accident forgiveness means that if you maintain a clean driving record, your insurance company won’t raise your premium if you have a single accident. Whether it’s included as a built-in feature or offered as an add-on that you can buy, this coverage is not free. Instead, the cost of the occasional accident is rolled into your premiums as an added expense. It can, however, help keep your premium level in the event that you have that first accident.
Accident forgiveness is a great marketing tool for insurance companies, and it can also be a positive value-add for consumers who have a single black mark on an otherwise spotless driving record. If it comes at an extra charge, you’ll need to run the numbers with your agent to determine whether it’s worth the added cost.
Strategies for the Accident-Prone
The threat of higher rates does have one positive effect … it’s a powerful incentive for careful driving. Some accidents can’t be avoided, but defensive driving practices can help protect yourself, your passengers, and your pocketbook. This incentive also means that safe drivers can be rewarded with discounts as long as they avoid claims and citations.
Bottom line—any claim you make, whether you’re at fault or not—has the possibility to cause your rates to go up. It depends on the claim and on your driving record and your insurance company’s pricing policies. The good news is, if you feel your rates have gone up unreasonably high, you can always get your independent agent to shop around for a new company. You always have options.