Why does car insurance cost more after an accident?

After you've recovered from the shock of being involved in a traffic accident, you'll need to determine whether the collision will result in higher insurance rates.

Your policy premium is based on the insurance risk you represent. Rates don't automatically rise just because you're involved in a crash, says Michael Barry, a spokesman for the nonprofit Insurance Information Institute (III).

Why your car insurance costs more after an accident

So what situations will lead to a rate increase?

Your insurer will raise your rates "only if you are an at-fault driver," Barry says. "If you happen to get hit by someone else, it won't be held against you."

Insurance companies determine who’s at fault based on police reports, . If there’s no police report, , insurers will do their own investigation.

It's common to see your annual car insurance premium rise by as much as 20 percent following a car accident in which you were at fault, says Jim Armitage, an insurance agent in Arcadia, Calif.

Barry says your premium will go back down over time, depending on how serious the accident was and whether there were claims filed for property damage or bodily injuries. The determination of when to reduce rates is made case by case.

But be warned: "It may take years," Barry says.

What happens to my safe-driving discount after a crash?

If you have a safe-driving discount that was granted because you had no accidents on your driving record, an at-fault collision likely will lead your insurer to take it away from you. That will make your rates go up.

This is because from the insurers' perspective, you’re now a greater risk and more likely to make a claim in the future.

But it's not all bad news. Sometimes your insurer won't penalize you for causing a minor accident with low repair costs, especially if you have a history of good driving, Barry says.

If you have multiple policies with your insurer, such as auto, life and homeowners, your carrier may be reluctant to raise your auto insurance rates, he adds.

That's because carriers fear you may take all your business elsewhere if you go shopping for cheaper auto policy quotes.

What happens if my car insurance rate rises?

If your insurer decides to raise your rates following an at-fault accident, it will continue to raise them for each new accident claim in which you were at fault, says Pete Moraga, a spokesman for the Insurance Information Network of California.

If your carrier decides you have become too risky to insure, because of numerous accidents or traffic citations, it may decide to drop you as a customer at the time of renewal.

When your driving record becomes so bad that no insurer in your state will voluntarily take you on as a customer, typically you must buy your insurance through an assigned-risk pool. These car insurance pools were created to insure the riskiest of drivers. Insurers are required by state insurance regulators to participate.

“It's the insurance of last resort. You are going to be paying higher rates," Moraga says.

How much higher your rates will be can vary widely, depending the number of insurance claims on your record, Moraga says.

If your car insurance rates go up, here are four tips for reducing your costs.

How to reduce your car insurance costs after an accident

1. Avoid additional accidents and traffic citations.

There is no substitute for safe driving when it comes to lowering your insurance premiums.

"(Your driving record) is the most important thing that impacts what you pay," Moraga says.

Insurance companies consider the severity of accidents and the cost of damage when setting your rates. The more costly your claim, the longer you'll be subject to higher auto premiums. According to the III, higher rates that are imposed following an at-fault accident generally remain in effect for three years.

2.   Shop for an insurer that won't penalize you for accidents

Accident surcharges vary by state and by insurance company. Car insurance companies are required to file a list of the rates they charge with insurance regulators, including how much they charge policyholders for at-fault car accidents.

Some insurers also penalize drivers for moving violations in addition to at-fault accidents.

Ask to see this information before you buy a new policy. Insurers are required to disclose surcharge fees upon request, Armitage says.

3. Buy an 'accident forgiveness' insurance policy.

Some car insurance companies recognize that even good drivers can make a mistake, Moraga says. They give their customers a break on at-fault accidents by not raising their rates. This sometimes is called an "accident forgiveness" policy. Each insurance company that offers this coverage has its own rules for what type of at-fault accidents it will forgive.

4. Enroll in a defensive driving class.

Some insurers offer discounts to people who complete defensive driving courses.

Typically, you can save 10 percent or more on your annual premiums after you complete one of these classes, Barry says.

While you may be motivated to take such a course to reduce your insurance rates, another benefit is improving your driving skills. Check with your carrier before you enroll to make sure you'll receive a car insurance discount.

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