How Does an Accident Affect Auto Insurance Rates?

by Craig Berman
Get enough fender-benders, and your insurance rates could skyrocket.

There’s a reason you pay that car insurance bill when it arrives in the mail – being insured means that an accident won’t lead to a catastrophic out-of-pocket expense. That doesn't mean there won't be a cost to filing a claim, however. An accident may cause your premium to increase if the insurance company sees it as reflecting increased risk, but the good news is that this isn’t necessarily the case.

Increased Risk

Though it might seem unfair that a single accident could cause your premiums to increase, it's a logical decision from a business perspective. Insurance agencies take accidents into account when setting your insurance rates, because your history as a driver is a predictor of what’s likely to happen in the future. Getting into an accident or two, particularly one where you are at fault, indicates to the insurance company that you may be at fault in future collisions, as well. Moreover, if it’s your first year driving or your first year with a new insurer, an accident may carry more weight, since there is less of a history for the agency to work with.

Critical Variables

How a car accident affects your insurance rates depends on a variety of factors. If the accident isn’t your fault, for example, your premium may stay the same, though multiple collisions that aren’t your fault may have a negative effect. If it’s just a fender-bender with little damage done, it’s also more likely that your rates won’t be greatly affected. If you have an extended relationship with your insurer and you haven’t had an accident before, you may have accident forgiveness provisions in your policy that can negate the negative effects that would otherwise occur. Forgiveness is usually a one-time deal, however -- if you get into another accident, expect your rates to rise.

The More, the Costlier

If you get into a major accident where you are judged to have been at fault, your rates likely are going to rise. An accident, particularly one that results in major damage to your vehicle or another vehicle or property, will cause your rates to go up. Insurance agencies commonly increase your premium by a greater percentage with each accident within a specified time period. For example, coverage might go up 10 percent after one accident, 30 percent more after a second, and 50 percent more after a third. In addition, that many accidents within a two- to three-year period may cause your insurance company not to renew your policy at all.

Your (Semi-) Permanent Record

An auto accident can affect your auto insurance rates for an extended period, often for years. Each insurance company has its own standards, however, and state regulations also may affect the rates companies can charge. Seeking a new provider immediately after getting into an accident may not be fruitful, but if your rate still hasn't recovered years after your last claim, it may be worth shopping around for a more forgiving insurance company that won't allow an older accident to affect your current rates.

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