What Causes Your Insurance Premium to Go Up?

What Is a “Chargeable” Accident?

A chargeable accident is one that can lead to an auto insurance rate increase. This generally means an accident where you were more than 50% at fault and that caused:

  • Damage to property, like another car or someone’s fence.
  • Bodily injury or death.

Some states might define a chargeable accident in terms of a dollar amount. For example, in Minnesota, a chargeable accident is defined as an accident for which the car insurance company paid more than $500 under bodily injury liability, collision or property damage coverage, with some exceptions.

Some states, such as Massachusetts, consider a chargeable accident one that involves a claim payment of more than $1,000 for property damage liability, collision or bodily injury coverage (for accidents where the operator is more than 50% at fault and driving a private passenger vehicle).

It’s always best to report an accident

If you’re reluctant to file an auto insurance claim because you fear that your premium will go up or your policy will be canceled, understand that you will be taking a risk by not reporting an incident, even if the damage seems minor.

If anyone else involved in the accident sues you weeks or months later, not having reported the incident will make it harder for your insurer to gather evidence to represent you.

Worse, your failure to promptly report the accident might put your insurance coverage in jeopardy: if your insurer isn’t informed in a timely manner, the company may refuse to honor your policy altogether.

 

Next steps: Learn all the factors that impact your auto policy cost.

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Low Credit Score

Lenders evaluate your credit score, among other things, to estimate your credit risk and ability to repay a loan. As it turns out, auto insurance companies also look at your credit score, but for a different reason: They have determined that people with low credit scores are more likely to get into accidents than people with high ones. As a result, they might charge more if you have a lower credit score (some states, including California, prohibit insurers from using credit scores when setting rates). That’s one more reason to keep an eye on your credit score and improve it, if necessary. 

What Other Factors Increase Your Car Insurance Premium?

Other factors, some beyond your control, may also lead to a rate increase. 

  • Change in marital status: Statistics show that single drivers file more claims than married ones. Your rate may go up if you divorce and, in some cases, after a spouse dies.
  • Adding drivers to your policy: If you add a new spouse or a teen driver to your auto insurance policy, the company may increase your premium. 
  • Change in gender marker: Female drivers tend to have fewer traffic accidents than males. If you change your gender marker from female to male, the insurer may increase your rate.
  • Your location: If claims for collisions, weather-related damages, auto theft, or vandalism increase in your ZIP code, your provider may raise your premium.
  • Your car’s make and model: If a spike in claims of your car’s make and model occurs, your carrier may increase your rate.
  • Your age: Most often, younger drivers pay higher insurance rates. While your rates may decrease as a young adult and when you reach middle age, they may increase when you reach your 60s.
  • Lost discounts: If you’ve earned a good-driver discount and have an accident, receive an employer discount and change jobs, or cancel a policy for which you receive a multipolicy discount, your car insurance rate may increase. 
  • Across-the-board rate increase: Insurance companies may increase the rates of all of their policyholders for various reasons. These include an increase in claims, the number of cars on the road, or more accidents involving injuries and fatalities.

Decreasing or “Disappearing” New Business Discounts

You may not have realized that some discounts you receive, usually when you first purchase your policy, are created as new policyholder incentives. Think of these as special offers for switching to a new company. You may get a particular discount for your first policy term as an initial offer, but then have it roll off after the first term is over. Sometimes, instead of the discount rolling off fully, some discounts may decrease gradually over more than one policy term. 

Frequently Asked Questions

Car insurance premiums increase an average of 46% after an accident with a bodily injury claim, according to an analysis of national rate data. Accidents with extensive property damage — $2,000 or more — can raise rates even more than that.

In the vast majority of cases, yes. You will likely have to pay more, unless your company offers accident forgiveness and you qualify.

If your claim is just above or below your deductible, it usually makes sense to pay out of pocket to avoid any surcharges or potential increases in rates. Some policies require you to report any accidents to your insurer. How much insurance rates go up after a claim may vary based on your driving record and the severity of the accident.

Insurers most often focus on the past three years of your driving record when setting rates. An accident usually affects rates for at least that long, though some insurers factor in an at-fault accident for up to five years or longer in rare cases.

In most situations, your rate will not go up after an accident in which you are not at fault. However, some companies may raise your rates even if you’re not the at-fault party.

What’s the Difference Between a Chargeable Accident and a Chargeable Incident?

A chargeable incident typically refers to a moving violation, such as a speeding ticket, leaving the scene of an accident or driving under the influence. Like an accident, a chargeable incident typically affects your car insurance rates for three to five years, depending on your state.

Zip Code

If you move, you could see an increase in insurance premiums. A study by CarInsurance.com, for example, showed that a 40-year-old man with a 2012 Honda Accord and a clean driving record would pay about $730 per year if he lived in Bullhead City, Ariz., but his premium would jump to $1,280 a year if he moved a few miles away to Laughlin, Nev. Similarly, health insurance rates can increase depending on zip code, cost of medical care in the area and population health factors, such as the local obesity rate. 

What causes auto and motorcycle insurance premiums to go up?

The easiest way to understand the increasing car insurance rates and motorcycle premiums is to see the insurer’s perspective that the more risk you and your car pose, the higher your premium is going to be.

The question, then, is what causes an insurer to perceive you to be more or less risky?

Here are things that insurers consider higher risk behaviors that could lead to an increase in your car or motorcycle premium:

  1. Getting a speeding ticket.
  2. Being involved in a car accident, especially if you were at fault.
  3. Being arrested for a motor vehicle offense, such as a DUI/DWI or reckless driving.
  4. Multiple comprehensive claims in a limited time frame.
  5. Being a teenage driver or a driver over the age of 70.
  6. Having a lapse in insurance coverage.
  7. A drop in your credit score.
  8. Moving from one state to another.
  9. Financing a new car.

There are also risks that are not specifically related to your behaviors or characteristics. There are some things that are outside of your control but could still affect your premium, including: rising repair costs, an increase in distracted drivers on the road, more drivers on the road, higher speed limits in your geographic area, and an increase in uninsured drivers.

Why Rates and Quotes May Differ

To help ensure you receive an accurate quote, it’s important to provide complete and accurate information. Inaccurate or incomplete information can cause the quote amount to differ from the actual rate for the policy.

Some example situations that may lead to differences between the quote amount and the policy rate:

  • If you start a quote with only a vehicle make and model but no vehicle identification number (VIN), your rate may change after you enter the full VIN.
  • If you leave out information in the quoting process about accidents you’ve been in (even minor ones), your policy rate may be higher.
  • If you forget to provide details about your significant others’ driving history, such as speeding tickets, this may lead to a higher rate.

Making sure you have the right information can make the process of getting a quote easier. You will need to have:

  • A valid driver’s license
  • Vehicle identification numbers (VIN) for all vehicles
  • The address where the vehicle will be stored

You will also be asked about driving history for you and any other drivers on the policy. To get an accurate quote, it is important to be accurate and complete as possible with the information you provide.

If you decide to purchase a policy and elect to pay your premium in installments, it may result in an additional fee for each installment payment. This can also change the amount you expected to see on your bill.*

What determines car insurance rates?

Car insurance rates are based on a number of factors not directly related to your policy, including your location, age, gender, and marital status. Data about how often people in these different demographics have accidents will influence your rates. In terms of direct factors, your type of vehicle, coverage limits, deductibles, driving, and claims history all play roles. Your insurance carrier may also discount your rates if you purchase multiple types of coverage.

When an accident might not increase car insurance rates

Defining what isn’t an accident is more complicated than defining what is. But most insurance companies consider the driver’s fault in an accident.

Some insurers check whether the policyholder is at least 50% at fault. If you don’t meet this threshold, then your insurer often won’t increase your rates. But there are exceptions. For example, some insurers don’t follow this rule for new customers. But proving fault in an accident can be difficult.

According to State Farm, the policyholder isn’t at fault if they were:

Lawfully parked. Reimbursed by, or on behalf of, a person responsible for the accident. Rear-ended and not convicted of a moving traffic violation in connection with the accident. Hit by a hit-and-run driver, as long as the accident is reported to the proper authorities within 24 hours. Not convicted of a moving traffic violation in connection with the accident, but the other driver is. Reporting damage caused by birds, animals, missiles or falling objects.

Generally, insurance companies focus on the three years prior to your policy start date. So if you were involved in an accident five years ago, it generally won’t be considered when calculating your rates. But this time frame may not apply to some accident-forgiveness programs.

How long does an accident stay on your record?

On average, at-fault car accidents stay on your driving record for three to five years. However, the exact length of time depends on your state and the severity of the incident. For example, in New York State, an accident or traffic violation will stay on your record until the end of the year when the incident occurred, plus three years after. In Oregon, an accident or violation will remain on your record for five years.

If you’re involved in a DUI or reckless driving crash, expect the incident to stay on your record for a minimum of five years to a maximum of your entire lifetime.  You can check your state’s Department of Motor Vehicles (DMV) website for information about driving record requirements where you live.

Individual Risk Factor Weighting

Finally, your insurance company may re-evaluate how risky each of the characteristics, or factors, of your policy is, based on updated data. An insurance company may react to the results of such an analysis by increasing specific rating factors (and potentially decreasing others).  

As you can see, there are some obvious and some not so obvious reasons for the price of your car insurance to go up every year. Whatever the reason is, be assured that not all insurance companies will charge the same amount for the same coverage. That’s why it’s important to shop around occasionally for a better price if you feel your insurance has increased too much. Annual increases are very typical across the industry, but the way that your risk factors are viewed by any particular company may vary. 

To make sure you aren’t paying too much, you should know your coverage and discounts to ensure you are getting the best price for the coverage you need.  

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