Auto insurance policies cover the cost of out-of-pocket expenses after an accident. The premise is simple: You pay a monthly premium for a specified amount of coverage and make an insurance claim after an accident. If approved, your insurer covers the cost of vehicle repair or replacement up to a specific amount, depending on your policy details.
However, while insurance operations are relatively simple to understand, the underlying factors that determine how much you pay for your coverage are not. Premiums are determined by various factors specific to the policyholder. These factors include but are not limited to age, gender, location, the car’s make and model, and, prominently, driving history. In general, the more “risky” a driver is, meaning how likely they are to file a claim, the more expensive they are to insure.
Therefore, driving history is an essential determining factor in premiums because it provides hard data to quantify your risk factor as a driver. It’s possible that even with a clean driving record, your premiums could increase after a claim, but this may not always be the case. Read on to learn more.
What Is a Claim in Auto Insurance?
A claim in auto insurance is a request for compensation from your insurance provider after an accident or other incident. Insurers attempt to investigate the circumstances of the claim to determine who or what caused the crash, with the policyholder either assuming responsibility (at-fault) or not (not at fault). That determination plays a significant role in determining insurance premium increases.
For example, imagine if another driver hits your car from behind while driving and damages your rear bumper and trunk. In this situation, you can file a claim with your insurance company for the repair cost, and you will likely be considered not at fault.
Claims When You Are At Fault
Consider a situation where you weren’t paying attention and damaged another driver’s vehicle.
You and the other party file claims with your respective insurance companies, who then communicate with each other and handle compensation.
The compensation for the other party is divided into two parts: Property and injury. The property damage liability coverage on your policy pays for repairs on the other person’s vehicle, while your bodily injury liability coverage pays for any medical bills. In both cases, these coverages activate to provide financial compensation up to your coverage limit after your deductible is fulfilled.
Anything beyond these limits, you are responsible for out-of-pocket. This means that if your bodily injury coverage limit is $20,000 and the other party has medical bills of $25,000, you’re responsible for the remaining $5,000.
At-fault claims can also extend to injuries caused if you were driving your vehicle and struck a pedestrian. In this case, your bodily injury liability coverage compensates you for medical bills up to your coverage limit.
Further, you may be compensated by your insurance company for the damage to your vehicle if you paid for comprehensive and collision coverage.
Claims When You Are Not At Fault
If you are not at fault, you still file a claim with your insurance company. You provide them with the insurance details of the other party involved, and the two insurance companies reach a settlement. Then, your insurance company pays for covered repairs and damages and recoups this money from the other insurance provider. If the other party’s insurance does not fully cover the cost of your repairs or medical treatments, they are obligated to pay the remaining balance out-of-pocket.
Twelve states and Puerto Rico have no-fault insurance, which means that your company covers the cost of an accident regardless of who is at fault.
It’s also possible to file a no-fault claim if a covered peril damages your vehicle, such as an extreme weather event mentioned explicitly in your policy.
Why Claims May Affect Your Car Insurance Rates
Claims may affect your car insurance rates if your insurer believes they may increase the frequency of your claims in the future, resulting in more insurance payouts.
For example, if you are involved in an at-fault accident, your insurance company pays for the other driver’s property and injury costs. It may also pay for yours, depending on your coverage type. Future at-fault accidents could result in more payouts, so insurance companies may raise your premium to compensate for this potential cost.
When Claims Could Increase Your Insurance Premium
Several scenarios could increase your insurance premium.
The first is at-fault accidents. Given the large payouts often associated with these accidents, your premiums may increase to help offset the cost of another at-fault accident. Your premiums may increase significantly if you experience more than one at-fault accident in a year.
Another scenario that could lead to a premium increase is if you make a high volume of minor accident claims during the year, even if they are low in value and not your fault. If your insurance company considers this an ongoing pattern, they may raise your premiums to defray the cost.
Depending on the number and type of claims you make, it’s also possible that your insurance company may look to reduce its total risk by choosing not to renew your policy when the term is up.
When Claims Won’t Increase Your Insurance Premium
In contrast, some claims are less likely to increase your insurance premium.
One example is accidents where you are not at fault, even if the compensation required is substantial. Since your provider receives this money back from the other party’s insurance company, your premiums are unlikely to increase.
Additionally, if you are at fault, your company may choose not to increase your premiums if you have been a customer for a long time and have rarely filed accident claims.
Deciding Whether or Not to File a Claim
While filing a claim be useful, there are some scenarios where you may elect not to.
For example, you might choose not to file a claim if the damage appears minimal and the other party admits fault and offers to pay you directly. It’s worth noting, however, that if the other party changes their mind after the fact, it may be challenging to prove fault and make a successful claim later. Meanwhile, it’s typically worth filing a claim in cases where damage is significant, or you are at fault.
To set yourself up for success, you may want to speak to your insurance provider in advance. Ask them about their policies for at-fault and not-at-fault accidents after claims are made and any increases tied to making multiple claims. Keep in mind that each state has its own laws and regulations in regard to claims and their changeability. Those local distinctions can be found on each state’s Department of Insurance website.
Finally, consider your deductible when choosing to file a claim. This is the amount you pay up-front before your insurance coverage takes over. Depending on the cost of the deductible, it may not be worth the claim. Consider an example of a tree hitting your car and causing $1,500 worth of damage. If your deductible is $1,000 and there’s a chance your premiums may go up, you may want to pay the entire amount out-of-pocket.
How to File a Claim
To file a claim, get in contact with your insurance agent. Depending on your provider, you may also be able to file a claim online. Make sure you have information on-hand, such as:
- The time and location of the accident
- The general extent of the damage
- The insurance information of the other party involved.
Regardless of whether you’re at fault, you file a claim with your insurance company which then acts on your behalf in conversation with the other party’s insurance.
Other Factors in Auto Insurance Rates
While filing a claim may impact your insurance premiums, other factors may result in higher or lower premiums.
Driver and Car Details
Depending on the driver’s age and the type of car driven, your insurance premiums may go up. For example, a young driver with only a few years of experience driving an older model vehicle may see higher premiums than an older driver with a newer, safer vehicle.
Driving history, such as the number of traffic violations on your record and any license suspensions or vehicle seizures, may result in higher premiums.
Insurance Coverage History
The more accidents claimed over time, the more you may pay in premiums. In general, reported accidents play a role in your premiums for 3 years after they occur.
The type of policy you purchase may come with higher premiums if it includes add-on coverages such as comprehensive and collision coverage, gap coverage, or rental car reimbursement.