It may be cheaper to pay out of pocket in some instances, warns a new study.
Sure, you’ve had a perfect driving record until now, but a new study warns that putting in a claim on your car insurance can be unexpectedly costly – in fact, you might wind up spending more than what you get back.
A single “at-fault” claim will result in an average increase of 38% in your annual car insurance premium, according to a new study by insuranceQuotes.com, and a second claim could nearly double what you pay, the precise increases varying state-to-state.
“The biggest lesson for consumers is not to file a claim unless absolutely necessary,” cautioned Laura Adams, a senior analyst at insuranceQuotes.com. “Making a claim for a few hundred dollars doesn’t make sense if your premium is going to skyrocket as a result.”
There are a few insurance companies – including Liberty Mutual, Nationwide and Allstate — that “forgive” a claim filed by a consumer for a first-time accident, but most consumers could be socked hard, according to the new study, especially those with less than stellar driving records.
And “having multiple claims within a short period is really damaging,” Adams explained, noting that this is likely to make you seem “risker to an insurance company than they thought before.”
(Do you recognize what those dashboard warning lights mean? Click Here to find out.)
For those not covered by a forgiveness policy, a single at-fault claim – meaning you’re responsible for causing the damage – translates into an increase of 38% in annual insurance premiums. A second at-fault claim within a 12 month period, the study found, will bump premiums up by 86%.
The exact amount will vary according to a variety of factors. The insuranceQuotes study was based on a “typical” 45-year-old motorist with a good driving record. But If the driver is very young and has a very poor credit record, the increase could be even more severe, Adams noted.
And increases vary state by state, from a low of 20% for a single claim in Maryland to 67%, on average, in Massachusetts.
(Poor credit record can double your insurance premium. Click Herefor the full story.)
Insurance companies don’t treat all claims the same way, however. In fact, they can fall into three different categories. Typically, the most expensive is the bodily, or liability, claim, which averaged $14,653 across the U.S. in 2012. Then there’s the damage claim which averaged a more modest $3,073 and reflected incidents in which a vehicle was damaged but no one was hurt. First time bodily and damage claims will drive up a typical U.S. motorist’s insurance rate by just over 40%, according to the study.
A third category of claim is called comprehensive, which can cover such things as theft, hail damage or a tree falling onto a vehicle. The typical comprehensive claim came to $1,585. But, perhaps more importantly, the study found insurance companies raised rates after a single one of these claims by a modest 2%, “So, it makes sense to file those,” said Adams.
If you do file a claim your insurance increase is likely to remain in effect for three to five years, she added – and that could stretch out even longer if you file additional claims or get points on your record from traffic tickets.
(Click Here to find out which states offer the biggest auto insurance discounts.)
The other critical factor to consider before contacting your insurance agent is whether you’re at fault or not. If the other motorist was determined to cause a crash your insurance company normally won’t penalize you. Even if you’re hit by someone else who either doesn’t have insurance – or who is under-insured – said Adams, your own insurance may kick in but you won’t be penalized.
The study was based on the rate plans for six major insurance carriers in all 50 states as well as the District of Columbia. It assumed a middle-aged driver carrying a policy providing a maximum $300,000 in liability coverage, with a $500 deductible, submitting a $2,000 claim.
And in other news, water is wet.
Happy holidays, Paul!
What people need to understand is that insurance companies will continue to make record profits from unscrupulously overcharging consumers.
Jorge M. You do not really understand the business model for insurance companies. They are in business to make a profit off the consumer.That is how they stay in business. They must make a certain profit in order to maintain sufficient cash reserves to pay out on claims. claims can be tiny or catastrophic like an earthquake or a Tornado Etc. Assuming you do not have a DWI or Recklass driving charge many insurance companies today look at the last 5 yrs.They look at not only your driving record but your credit history. Do you pay your bills on time or do you consistantly pay late or cancel and reinstate. Actuarial statistics tend to proove that on average people with poor payment history have more claims. I could go on but I’ll simply summarize and say this. If you want the best insurance rates for auto subscribe tothe following:Always pay your bills on time, especially your insurance bills. Do not show up on the radar for any type of violation or any type of claim(including towing or glass breakage) for a minimum of 5 yrs.Do not keep hopping from one insurance carrier to another. You should stay with the same carrier for a minimum of 2 yrs.Don’t drive a high performance car or an ultra expensive luxury car(costly to insure). Do these things and you will most likely pay a lower insurance premium than any of your friends and relatives.
Do insurance companies ever share this information with their policyholders? If it’s a ‘borderline’ decision on whether or not to file a claim, that information would allow a better-informed decision. To keep that info secret and just wait to ‘ding’ the policyholder seems borderline dishonest.
And I’m not buying Jorge’s statement that credit history is relevant to insurance rates — your driving record, where you live, the type of car you drive, its value — all relevant to the ‘risk’ they assume in insuring a driver. But a bad credit record from an illness, divorce, etc. has nothing to do with risk. “Correlation is not causation.”
Actually, as TheDetroitBureau.com reported earlier in the autumn, your credit record does influence your insurance rates, though the insurance companies don’t directly depend on your Experian score, for example, but use their own process to determine your rating and apply it to implied risk used to determine premiums.
Here’s the link: http://www.thedetroitbureau.com/2013/10/poor-credit-record-can-double-your-auto-insurance-costs/
Paul A. Eisenstein
Publisher, TheDetroitBureau.com