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How Car Accidents Affect Your Auto Insurance

It happens in a second: you spill hot coffee on your lap, or glance in the rear-view mirror to see why the kids are fighting, and don't have enough time to react when the car in front of you slams on its brakes.

Once you determine that everyone is OK and check the damage to your car, your thoughts will likely turn quickly to how this will affect your auto insurance rates.  

Practices vary from one insurance company to the next, but in general your premium will rise by a specific percentage for each chargeable claim -- ones the insurer considers primarily your fault.
Depending on the insurer, at-fault accidents can remain on your record for six to 48 months and could mean that you are paying a higher premium during that time, says Madelyn H. Flannagan, vice president for education and research at the Independent Insurance Agents and Brokers of America, Inc., a trade group.

Worse, if you have three or more at-fault accidents or moving violations within a 24-36 month period, your company may choose not to renew your policy.

Penalties vary, but here's what happens at State Farm:  At one extreme, if you've gone at least 10 years without a chargeable claim  there's absolutely no effect on your premium, according to spokesman Dick Leudke.

At the other extreme, if you have an accident within the first year of your policy, you can count on paying a higher premium when it comes time to renew the policy.  Leudke says the cost of liability insurance, which typically represents 40% of your premium, will go up, as will the cost of personal injury coverage and collision, which covers the damage to your car.

The first time, the cost of all three types of coverage will go up 10%; the second time another 30%, and the third time an additional 50%. So after the third accident the cumulative increase in the cost of liability, personal injury and collision insurance will be 90%.

Leudke says a chargeable claim won't have any effect on the cost of comprehensive coverage, which typically represents 15% of your total premium and covers things like theft, weather, or hitting deer, which have little to do with your driving.

To completely go away you'd have to go 10 years without another chargeable claim. But some would come down after eight years.

Of course, your insurer can't raise your premium if you don't report the accident and submit a claim. If the damage is relatively limited, you may think you're better off paying for it out of your own pocket.

However, if you do so, you're taking a risk: the other driver could still sue you, in which case your failure to report the accident might cause your insurer to refuse to honor the policy, according to information posted on the website of the Insurance Information Institute.

Allison Bisbey Colter is a freelance writer in New Jersey whose work has appeared in The Wall Street Journal and American Banker. She is a former editor at TheStreet.com and a former reporter for Dow Jones Newswires.

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