Saturday, April 19, 2014

What You'll Get for That Car Accident vs. What It May Cost You

That sickening crunch you just heard was your car ramming the parking lot light pole as you backed up. So you better call your insurance company, right?

Maybe not. Depending on your driving and accident record, an increase in premiums could wind up costing you more than the claim is worth.

Before you find yourself in that situation, read over your policy and estimate if reporting an accident could boost your premiums sharply--or even threaten to keep your insurance company from renewing your coverage. The way to view your auto insurance is as protection for big losses, says J. Robert Hunter, director of insurance for the Consumer Federation of America, Washington, D.C.

Reviewing coverage

Take a high deductible--$1,000 if you can afford it--which will lower your premiums as much as 40% vs. a $200 deductible. If you do have a fender bender, you have no legal requirement to report it, and most major insurance companies leave that decision up to the policyholder. "In a minor accident where it looks like the damage will be below or near the deductible, it probably makes sense not to file a report," advises Hunter. [Stash the deductible in your credit union share-savings account, along with the rest of your three to six month take-home pay emergency fund.]

Hunter explains that insurance companies have a rating point system for setting premiums to individual customers. While each case is different, he says that as a general rule a first reported accident might increase your premiums 10% to 15% and a second accident 20% to 30% more. A third accident within a relatively short time, such as one year, might threaten renewal of your coverage.

"We believe our customers paid for coverage and they should use it."

Past accidents and tickets will be cleared from your record automatically every three to five years--depending on the law in your state. If you lose your coverage, many states provide backup policies, but your cost will be much higher than for a private policy. (If you think you may need such coverage or have other questions, check with your state insurance department).

Recent traffic tickets also can make rate hikes after an accident more likely. Dick Luedke, Bloomington, Ill., a spokesman for State Farm Insurance, the largest insurer of motorists in the country--says the company looks at a variety of factors in setting rates or deciding to renew coverage in each individual case--starting with driving and accident records.

Where you live, your age, and elements of your credit report--particularly how reliably you pay your bills--also figure into setting your insurance rates. Mike Siemienas, spokesman for No. 2 Allstate®, adds that the kind of car being insured also can affect rates. "An 18-year-old in a Corvette is going to pay more than an 18-year-old in a Honda," he adds.

Stash the deductible in your credit union savings account.

What to consider

Not reporting a minor accident to your insurance company sometimes can make good financial sense. But different circumstances can make that a risky alternative. Here are the factors to consider as you make that decision:

  • How's your driving record? If you had another accident or a ticket fairly recently, it may make sense to pay for more damage yourself than you otherwise would. In the case of a ticket, circumstances matter. A single speeding ticket for five or 10 miles per hour over the limit, says CFA's Hunter, won't be the big negative that a more serious citation such as reckless driving would be.

  • Was another car involved? Another driver makes it more likely you need to call your insurer. But if damage seems minor and the other driver suggests or agrees readily to not reporting the accident, it could make sense to leave it unreported.

  • Is there serious damage? If the hood or one side of your car or the other car is smashed in or you suspect engine, transmission, or frame trouble, file the claim. Accident damage repair can cost much more than you are likely to estimate. "We believe if our customers paid for coverage, they should use it," says State Farm's Luedke. When you could be looking at several thousand dollars in damage, he is right.

  • Whose fault was it? This can be murky, but sometimes very clear. If you backed into another car while the driver sat in it, it is unquestionably your fault. Let your insurer know about the accident even if the other car has most of the damage. The other driver will file a claim with his or her own company--which eventually will collect through your policy unless you live in a no-fault state (now 12 states and Puerto Rico).

    You have no legal requirement to report a fender bender; most insurers leave that decision up to you.

  • Is anyone injured? If so, the decision is automatic. Call 911 for an ambulance and the police and assume there will be an insurance claim. Start getting all the documentation you can. Get the name, phone numbers, and insurance policy numbers of the other driver--plus the license plate number and vehicle identification number of the other car. Once the police have completed their investigation, be sure you get a copy of the police report and the number of the case in police records. In case of injuries, notify your insurance company as soon as possible. The insurer will want to start tracking your case immediately since the possibility of lawsuits now is increased.

If your accident involves another car and claims were filed, eventually you're likely to get a call from the other driver's insurance company to get your version of what happened in the accident. Be sure you know in advance what you will tell them and that it stays consistent with what you told the police at the scene. In the unhappy case of an eventual lawsuit, such consistency could be important.

If it looks like the damage will be below the deductible, it probably makes sense not to file a report.

As for getting your own car repaired, companies such as State Farm and Allstate have a network of body shops where they prefer you take your car. If you agree, the shop will give an estimate to the company and, if approved, the work will move ahead. This alternative likely results in the quickest repair and claim payment. On the other hand, if you have a body shop you trust and have worked with before, that shop can make an estimate and a company adjuster then will look at the car to see if that price will be approved. This may take longer, but it may be worth a small delay to get the work you want at a shop you know.

Having an auto accident--even a small one--is upsetting. So go over your alternatives before you ever hear that crash and have a good idea of what you'll do after minor and more serious accidents. And remember that, in a small accident, not asking for a claim payment may save you money in the long run.

Jerry Edgerton is an automotive writer whose work has appeared in Money and other national magazines. He also is the author of the book "Car Shopping Made Easy."

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