When It Makes Sense to Skip Filing a Car Insurance Claim
NEW YORK -- Drivers pay an average of 41 percent more for car insurance after making a single claim, according to the second annual study by insuranceQuotes.com.
Massachusetts continues to be the worst state to have an accident occur -- just one claim leads to an average premium increase of 76 percent compared to 67 percent in 2014. The national average is up three percentage points this year, compared to the 38 percent increase found in 2014 (typically your premium won't increase if you aren't to blame for the accident, except in a no-fault state). The cheapest state is Maryland, which only increases premiums by 22 percent.
California also penalizes drivers for just one claim and increases rates by 75 percent, followed by 62 percent in New Jersey. Other states which have lower increases include Michigan with a 23 percent increase and Montana with a 25 percent rise in premiums. To check out where your state ranks, go here.
%VIRTUAL-pullquote-Many consumers underestimate the consequences of making claims because they can affect your rate for years.%Making a second claim proves to be very costly since a driver with two claims pays over twice as much for car insurance as a claim-free driver or 93 percent.
If you dent your car accidentally by backing into a pole in a parking garage and the amount of the damage isn't much more than your deductible, it might be worth it to pay for the repair yourself.
"Many consumers underestimate the consequences of making claims because they can affect your rate for years," said Laura Adams, a senior analyst at insuranceQuotes.com. "If you get a premium hike for making a small claim that could hurt your finances over the long run."
Location isn't the only reason your premium may increase drastically. Many increases are also affected by the type of claim. Bodily injury and property damage including collision claims are the most expensive with insurance costs rising by 45 and 41 percent, respectively. The cheapest ones are comprehensive claims for non-collision events such as theft and barely increase at 2 percent.
If you aren't sure whether you should file a claim, use the calculator here.
When Rates Rise
The study found that drivers who make a single auto insurance claim of $2,000 or more will see an average premium increase of 41 percent. A second claim in the same year increases your average annual premium increase by 93 percent. The average cost of an auto insurance premium in the U.S. is $815, which means an increase of 41 percent would result in having to shell out another $335, according to the National Association of Insurance Commissioners.
Consumers need to understand that insurers use criteria that assess risk, said Loretta Worters, vice president of the Insurance Information Institute in New York.
"Your premium is based on how likely you are to get in an accident and how much that accident will cost," she said.
The average yearly auto insurance premium is about $800, but there is wide variation around these averages, said Worters.
For many insurers, "credit-based insurance scoring is one of the most important and statistically valid tools to predict the likelihood of a person filing a claim and the likely cost of that claim," she said.
"Credit-based insurance scores are based on information like payment history, bankruptcies, collections, outstanding debt and length of credit history," Worters said. "For example, regular on time credit card and mortgage payments affect a score positively, while late payments affect a score negatively."
A number of factors determine if filing a claim is worth it, and consumers should obtain at least one or even two estimates before making any decisions, said Alec Stewart, principal of Eagle Independent Insurance Agency in Dallas.
"The bottom line is that people need an agent working for them to give them the best advice on whether a claim should be filed and to assist them with the claims process," he said.
-Written by Ellen Chang for MainStreet.