How Does an Accident Affect My Car Insurance Rates?

How Does an Accident Affect My Car Insurance Rates?

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Most often when it comes to car insurance advertising, companies like to boast their “Accident Forgiveness” or “Good Driver” discounts. That's because accidents have a huge influence on your annual car insurance rates. An accident, or lack thereof, can mean the difference of hundreds of dollars on your rates.

Comparing rates from multiple insurers, even after an accident, is still among the best ways to save money on car insurance.

Below, we will explore what counts as an accident, and what isn't in the eyes of the insurance companies, and how an accident may affect how much you pay every year.

How Much Will Your Car Insurance Rates Go up after an Accident?

Our five state study found that rates for a 30 year old male who drives a 2014 Toyota Corolla would increase an average of 1.33x after an accident which caused both bodily and vehicular damage. Accidents, which only involved damage to property or a vehicle, were less drastic, with rates increasing an average of 1.23x.

Thus if your yearly premium was $1,000 before the accident, it could become $1,333 after you got into an accident with both hospital bills and repair expenses, and $1,230 for just vehicular damage accidents.

This graph shows how much our sample 30 year old driver's annual auto insurance costs increased after he got into an accident that caused bodily injuries or damage to other vehicles and property.

As with most auto insurance issues, results can vary state by state. In our analysis of car insurance rates in Massachusetts, we found rates increased 1.48x after an accident, while in Pennsylvania rates only increased 1.16x.

Between companies there was also a pretty large discrepancy.

  • State Farm, for example, averaged only a 1.20x rate hike across the states we studied.
  • GEICO had an average hike of 2.18x.

Essentially, when it comes to accidents, the damage they can do to your rates is heavily dependent on which state you come from and which company you hold your policy with. That's why we always urge consumers to compare quotes -- the same driver and accident can be treated very differently by various insurers.

What is an Accident According to Car Insurance Companies?

To answer this question, we looked into how the five largest auto insurance companies in Alabama calculated their quotes:

According to State Farm an accident is when a claim has been made “totaling $750 or more under property damage liability coverage and collision coverage combined.” The accident must also be at least 50% the driver’s fault. GEICO calls them “qualifying accidents,” and similarly to State Farm, has a monetary threshold. In this case however, for certain “risk groups”, the threshold is $500 instead of $750. GEICO also maintains the 50% at fault limit.

Allstate divides what is considered a chargeable accident into whether they are calculating premiums for a new customer or a returning customer. New customers get a more strict definition, considering an accident anything that results in damage to property, bodily injury or death. Those looking to renew rates have a threshold of $500 to surpass in order for the accident to be considered chargeable, as well as 50% fault.

Progressive and Farmers also follow this definition, requiring new business applicants to have 0% fault accidents for it to not count against their rates. For renewing business Progressive requires less than 51% fault while Farmers requires less than a $400 payout.

We chose Alabama because it was the only state in which complete information for all five companies was available.While certain things may change between states -- such as the severity of the rate hike or determining fault -- what broadly constitutes as an accident should more or less be constant between states.

What Doesn't Count as an Accident

Defining what isn't an accident is arguably more complicated that defining what is. A factor we find common to most insurance companies, however, is the percentage of fault a driver is assigned in an accident.

We mention above that chargeable accidents are those in which a driver is deemed more than 50% at fault, so conversely, if your role in an accident is less than 50%, your company will not charge it against your rates (unless you are a new customer for the companies we mention above). Proving fault in an accident is difficult however, and can leave room for a lot of ambiguity.

Luckily, State Farm provides more information and explicitly details what else it doesn’t consider an accident. According to State Farm, “an accident shall not be considered at-fault or chargeable if the applicant demonstrates:”

  • It was caused by contact with birds, animals, missiles, or falling objects
  • They were lawfully parked
  • They were reimbursed by, or on behalf of, a person responsible for the accident or has judgment against such person.
  • They were struck in the rear by another vehicle and has not been convicted of a moving traffic violation in connection with the accident
  • They were hit by a “hit-and-run” driver if the accident is reported to the proper authorities within 24 hours
  • They were not convicted of a moving traffic violation in connection with the accident, but the operator of the other automobile involved in the accident was convicted of a moving traffic violation

Allstate, Progressive, and Farmers also match that definition according to their rule manuals for Alabama, although with a few more provisions. GEICO does not include any of the above exceptions in its rule manual, but does share with Allstate an exception which excludes instances where "a full-time fire fighter or law enforcement officer of a municipality or county was involved in an accident which occurred during the performance of his/her duties." Farmers also doesn't count accidents which were the result of tire failure.

Time is also an important factor when it comes to qualifying an accident.

Generally all companies pay attention to the three years preceding the policy start date. Thus, if your accident was five years ago, it generally won't be used against you when calculating your rates. This timeframe may not be applicable to some accident forgiveness programs however.

What Other Accident Factors Influence Rates?

If you are in an accident that does has a large damage amount and were found mostly at fault, there are some mitigating circumstances. For one, your auto insurance company and state may have an accident forgiveness program which will waive, usually one, qualifying accident. If you are not fortunate enough to have an accident forgiveness program, there are a host of other factors that may or may not reduce the severity of your accident on your rates.

Age: Surprisingly, when it comes to accidents, the younger you are the less you have to worry about your rate hike. Usually when it comes to auto insurance, younger drivers are at a disadvantage due to insurance companies perceiving them as "risky" drivers and thus more likely to cause the insurance company to pay out. It is likely that they've already factored this age group's higher statistical likelihood of expensive accidents into their rates, which results in a higher starting cost to begin with (pre-accident).

As it turns out, when an 18 year old gets into an accident in Alabama, their rates hike about 7% less than a 30 year old's. We tested this in two other states and found rates increase less for younger drivers there as well. For more on the relationship between age and rates, click here.

Number of Violations: The number of accidents you get into, and how frequently they occur is a huge factor in determining how high your rates will spike. Accumulating four qualifying accidents in three years can see your rates increase by 2.25x in Alabama and 2.14x in Massachusetts. If you already have been in an accident within three years, you should expect a significant rate hike.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

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