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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."
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- The policyholder's driver's license has been revoked or suspended.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.
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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."
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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.
Continued: Watch out if you're at fault
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