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Premium Impact After Car Accident

Premiums: explained

June 24, 2020
Written byChris StyrskyChief Actuary
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Since the day you were issued your first driver's license, you've made a point of avoiding

distracted driving, staying at least three seconds behind the vehicle in front of you, and even

driving five miles under the posted speed limit. But, after years of careful driving, it happened.

You collided with another vehicle.

After breathing a sigh of relief that no one was injured, your next concern is financial. According

to a recent NerdWallet analysis, car insurance rates skyrocket by $839 a year, on average, if you

cause an accident resulting in as little as $5,000 in property damages.

While a car accident can lead to increased premiums, figuring out how much your rates will

increase isn't that cut and dry. Here are at least four factors that may influence the final decision.

Factor #1: Who's at Fault

Your insurer and state of residence will ultimately determine the extent to which your premiums

will change. But expect that drunk or reckless driving that results in an accident will trigger a

substantial premium increase or policy cancellation. If, however, you're on the receiving end (no

pun intended) of a crash, and it's determined to be the other person's fault, you're unlikely to

experience a bump in premium costs.

In the event that you do, it may be by a lesser amount when compared to an accident where

you're found to be at-fault. The bump in rate is usually limited to three years or less. Again, your

policy and whether you live in a no-fault auto insurance state will determine how this applies to

your specific situation.

Factor #2: Your Driving Record

An accident will cause your car insurance company to re-evaluate the risk of providing you with

a policy. There are several factors that an insurer will probably consider before deciding on rates.

Some include:

  • Your Recent Driving History, e.g., moving violations, number of prior insurance claims,
    previous payouts, etc.
  • Accident History, e.g., prior accident fault, minor vs. major accident, etc.
  • Current Accident Details, e.g., who's at fault, severity of the incident, driving under the
    influence, etc.

It's no surprise that a clean driving record will often result in only a small rate jump. Safe drivers

with no prior claims save companies money. And the longer you've been with them, the better.

Insurers want to keep safe drivers, not scare them away with rate hikes. So, if this is your first

fender bender in 15 years, your rates shouldn't skyrocket.

Factor #3: Type of Accident

If the accident was beyond your control, such as hitting a deer, you might experience less of a

rate increase when compared to a head-on collision where you were texting while driving. Also,

in this example, one is likely to cause more damage than the other. The cost of paying the claim

can be the most significant factor in determining whether your rate will increase.

Factor #4: Your Insurance Carrier

A minor claim, as defined by the insurance carrier, may be forgiven and not affect your

premium. Since policy details vary by provider, you must understand how they classify accidents

based on the auto insurance systems, e.g., no-fault, choice no-fault, tort liability, or add-on, as

applicable to your state. Review your policy or speak with your agent to confirm which system

applies to you.

Long-term policyholders or those who carry multiple policies might have the leverage to

negotiate premium increases with their carriers.

The amount your insurance premium might increase after an accident is hard to predict. What is

clear is that if you're now perceived as a high-risk driver, then you should expect to pay more for

insurance, even if you switch companies. Remember that the definition of "high-risk" may vary

from insurer to insurer, so it's worth shopping around for the best rate.

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