Your car insurance policy is there to save you from falling into a big financial pit. If you ever try to get your car fixed without auto insurance, you’re in for an expensive surprise. You’d be shocked to see how much even a little paint job can cost. And if the damage is severe, you’d be shelling out almost as much as the current value of the car. This is why there’s an auto insurance policy both for your damage cover and third-party damage cover.
The only problem here is that insurance companies are always tracking your driving record, recent tickets, traffic violations, etc. Any little traffic violation can increase your insurance rates. The price hike you’ll be charged depends on the type and severity of the traffic violation. But know that if you get in an accident, if it is a fender-bender or something that just turned your car into a chunk of metal for the landfill, your insurance rates will go up.
Why do Insurance Rates Go Up After an Accident?
Insurance companies are risk-management companies. These companies are liable to pay hundreds of thousands of dollars (even millions) in case of an accident for each policyholder. Imagine what would happen if fifty policyholders made insurance claims at once. The company would go bankrupt.
This is why these insurance companies assess every possible factor to know how much risk is associated with each policyholder. They do extensive research about the driving record, past insurance claims, accidents or tickets, age, gender, credit score, and a lot more. All this is done to see how likely the policyholder is to make an insurance claim.
People with poor driving records or traffic violations are more likely to make an insurance claim. To offset the cost of such events, insurance companies will charge more to people who carry more risk. This is also the reason why after an accident, your insurance rates go up. Being in an accident completely throws away the risk factors and you become a high-risk policyholder to the insurance company.
Should You Switch Insurance Companies After an Accident?
Coming to the meat of the matter, since there is no way you can reverse the price hike of your insurance policy after an accident, should you consider switching auto insurance companies after you have been in an accident? The answer to this question is far from being a simple yes or no.
Here’s when you should not switch your car insurance company after an accident; let’s say that you have had a policy for years. If the renewal date of your current policy is more than three months and you get in an accident, do not make the switch now.
This is because your current insurer will not increase the insurance rates and premium prices until your policy is renewed. This means that even after an accident, for whatever months your policy is valid, you get to pay the old, low rates. If you make a switch right after an accident, you’ll have to pay inflated prices right when the insurance policy becomes active, which usually is within a few days of getting a new one.
Just like almost every company has a “loyalty” program for customers which gives long-term customers rewards for sticking with the company for more than a few years, auto insurance companies also have such loyalty programs. It is called an accident forgiveness program and it allows one accident to be forgiven, i.e., no price hikes after renewal even after you have made an insurance claim.
But loyalty programs are different for different companies with their own set of terms and conditions. For example, some companies require you to keep a “claim-free” period of more than five years with them to qualify for accident forgiveness. Some companies such as Allstate and Geico allow you to buy accident forgiveness passes. It will cost you a lot but will save you from a price hike.
So if you have or can get accident forgiveness, then don’t switch your insurance company. Stick with the same company and you can save a lot of money. But is it always better to stay with the same company after an accident?
When to Change Insurance Company
As mentioned earlier, if your policy is active for more than three months, it is better to stick with the same company till the current policy expires. But once it does and there is no option for accident forgiveness or you feel buying one would be too expensive, it is better to make a switch.
Before you make the switch, it is important to choose the insurance company that has the lowest cost after an accident and gets insurance at the best price possible. You can do this by comparing different insurance companies, comparing their plans, and then making the decision.
Different companies have different rates of price hikes after an accident. Some companies might just slap you on the wrist with a 10-20% price hike, while other companies might slap hard enough to dislocate their wrist with a 100-150% price hike. This is why it makes sense to choose the company with the least price hike.
Also, important to note; Do not cancel your previous policy if your new policy is not active. If there is any brief period where you do not have an active auto insurance policy, that would increase your insurance rates even more. So first make sure your new auto insurance policy is active, then cancel your old policy. Switch sensibility and save money after an accident.