6 Things to Know Before You Make a Claim
You pay your premiums, but when your car is damaged, you balk because you fear a claim will mean higher insurance rates. Here's what you need to know.
By Bankrate.com
Have you ever been hesitant to tell your car insurer about minor damage to your car because you were afraid your rate would go up? The Insurance Information Institute reports that the average expenditure for car insurance has steadily increased each year since 1999. If no other party is involved, you may be tempted to keep quiet about a minor claim. But why have insurance if you can't use it when you need it? "People are often too petrified to file a claim because they think they won't be able to afford a premium increase," says Eric Tyson, the author of "Personal Finance for Dummies." We all want to be accident-free, but "it's important to remember that filing an insurance claim isn't necessarily bad," he says. "Insurance is there to protect you, and it makes good financial sense to use it when necessary."
- What to do after a car accident: The first part of the claims process is pretty straightforward.
"In an accident, an adjuster will be assigned, and, based on the specific factors of the claim, they may talk to you and they may work with the other driver involved. They also might look at police reports, take a look at your car and look at the car of the other individual involved in the accident," says Mike Siemienas, a spokesman for Allstate in Northbrook, Ill. Then, the adjuster will work with you to ensure any necessary repairs are paid for and completed.
What happens after the claims process varies. If it is determined that you are at fault, your rates could go up or you could lose coverage altogether. Here are six things you need to know about car insurance both before and after you file a claim:
1. Know the difference between cancellation and nonrenewal.
There's an important distinction between an insurance company choosing not to renew a policy versus canceling one. According to the Insurance Information Institute, a company can't cancel a policy that's been in force for more than 60 days unless one of the following has occurred:
- The premium has not been paid.
- The insured person fraudulently filled out the insurance application.
- The policyholder's driver's license has been revoked or suspended.
However, insurance companies can decide not to renew a policy once the existing term ends.
"Companies generally write policies that are renewed every six months or one year," says Mike McCartin, an insurance agent with Joseph W. McCartin Insurance in College Park, Md. "If you have an accident where you are at fault, and you've had previous claims in the last three years, your insurer might decide not to renew your policy."
That's a general guideline, but McCartin says there are no firm rules about when a company can choose not to renew.
2. Ask about penalties before you have to file a claim.
The best time to find out how lenient your company's renewal guidelines are is before you buy auto insurance from them. "Ideally, it's best to ask these questions while you're still shopping for a policy," says McCartin. "Ask on the front end, 'What are the rules for cancellation?' That way there's not a surprise."
McCartin also advises customers to read reviews from organizations such as Consumer Reports to find out which insurers rate high on customer-satisfaction surveys. If a company gets low marks for not renewing policies, McCartin suggests policyholders take note before buying car insurance from that provider.
"The insurance company might be giving you a great deal pricewise, but the risk of sharply increased rates after an accident may not make the policy worth it," McCartin says. If you're already doing business with an insurer, check your contract to learn about nonrenewal guidelines. Look to see what remedies are offered if you disagree with a decision not to renew your insurance. Some policies offer third-party arbitration. To have specific questions answered, contact a company representative. "For personalized information, the best advice I can give to people is to contact their local agent," says Siemienas. "They are there to assist you and to help explain your policy and your coverage to you." Think twice before paying up immediately. Here are options that could protect you from higher insurance premiums.
3. One minor accident probably won't cause your policy to be dropped.
"We're able to renew policies for the vast majority of our customers," Siemienas says. "It's a very small percentage of people whom we would no longer offer coverage for based on the amount of claims filed."
McCartin agrees. "Every situation is different, but it's unlikely your coverage will end after your first at-fault fender-bender," he says. For the insurance companies he works with, McCartin says, a driver usually has to have two at-fault accidents over three years, with damage exceeding $1,000, to be at risk for losing coverage.
"That is for a preferred tier. If you were in a standard tier with slightly higher rates," he says, you might have even more leniency. The tier system is a way insurance companies evaluate the likelihood that a particular driver will get in an accident, based on the statistics of the tier group. Drivers would be placed in a certain tier based on factors like the number of accidents they've been in over the past three years, the type of cars they drive and their overall number of years of driving experience. There are circumstances where even one claim could cause a loss of coverage. If alcohol is involved, the driver probably won't have the policy renewed, says McCartin. In addition, having multiple traffic tickets could be a cause for nonrenewal, even after only one accident.
4. If you're at fault, prepare for a rate increase.
Though your insurance company might not drop you after an at-fault accident, it will likely increase your premium at the next renewal term. "Some companies say, 'If you go three years without a claim, we give you a discount. If you get a claim, we get rid of your discount. If you start getting more claims, we start raising the rates even higher,'" and it's within the insurers' legal rights to do so, says Stephen Sugarman, a professor of law at the University of California, Berkeley. "We have different policy options for different customers," Allstate's Siemienas says. "Some people, depending on how long they have been with us, may get a freebie (meaning no loss of coverage and possibly no premium increase) based on their tenure with the company or how long they've been claim-free." Some insurance companies offer "accident forgiveness" policies that enable a policyholder to file a claim for an at-fault accident without the fear of a future rate increase. The drawback is that these policies might require a higher premium, even if the driver has a clean history. And though an accident could be "forgiven," it won't be forgotten -- it will still remain on the driver's record. When assessing rates, insurance companies might look at your tier to help determine how much you'll have to pay. They may also look at your "insurance score," which is usually calculated by a third party and is derived from information in your credit report.
"The insurance score is one of many factors we use in determining an individual's auto rate, along with the type of car a person drives, their past driving record, their age and things such as that," says Siemienas. "We try to be able to charge the appropriate rate for the appropriate risk."
A small percentage of people who have an excessive number of tickets, at-fault accidents or a drunken-driving conviction may not be able to find regular car insurance on their own. In that situation, they'd need to contact their state insurance department to join their state's high-risk pool or a find a nonstandard insurer. Both choices mean higher premiums.
5. A minor accident could be a major problem.
A person involved in a minor accident like a fender-bender might not think that it's a big deal. He or she may even decide not to tell their insurance company about the accident, preferring to pay for any damages out of pocket.
"But what some people think is minor could turn out to be a lot bigger at the end of the day," says Siemienas. For example, that fender-bender could cause a personal injury that's not evident until a week after the crash.
If people delay reporting an accident to their insurance provider, the company may have a hard time investigating the accident thoroughly -- and finding evidence that would prove that the policyholder is not at fault.
"That's why I always recommend if you are involved in an accident with another individual, you should contact your insurance company and local law enforcement as soon as possible," Siemienas says. "The later you bring us in, the more difficult it makes it on our end to investigate the claim."
A delay in reporting the accident could also make it harder to collect damages from the other party if they are at fault. "If there's any doubt about the other side paying, it's better to let your insurance company know about the accident as soon as possible," law professor Sugarman says.
6. Know your next step if your policy is not renewed.
If you've filed a claim and your policy is not renewed, it may not be entirely your fault. Your insurance company could simply be reducing the number of auto policies that it writes in your geographic area, so even one small claim could make the company decide not to renew.
If you think your current insurance company is unfairly refusing to renew your policy, contact your agent and voice your concerns. If that doesn't help, go to your state insurance department to complain. If your car insurance contract states that your company offers arbitration, contact your local representative to start the process.
Even if you take these steps, it's still important to find another insurer that wants your business, says Sugarman.