Have you ever heard the saying “Past performance is no guarantee of future results”?
It’s a phrase commonly used in the investment world intended to caution investors that the past performance results of a particular investment aren’t necessarily indicative of how that investment will perform in the future.
When it comes to auto insurance the opposite is generally true as insurance companies consider past performance to be a likely indicator of future results. What this means is auto insurance companies consider your driving history, including any tickets and accidents, as key factors in assessing the likelihood of future claims. In most instances insurance companies look at all accidents – regardless of fault – and those accidents can affect how much you pay for your Michigan auto insurance.
Most people understand and accept at-fault accidents are going to affect how much they pay for car insurance. Typically, insurance companies apply a surcharge (an increase in base rates) for at-fault accidents for 3 years, beginning at the first renewal following an accident.
The amount of surcharge for an at-fault accident is going to vary between insurance companies. In some instances, the severity of an accident (amount paid in damages) may also be a factor in determining the extent to which an accident will affect your rates.
There are two ways accidents typically affect auto insurance rates:
Loss of Discounts – Many insurance companies provide a discount for drivers who haven’t had any accidents for 3 years or longer. Any accident, regardless of fault, may result in the removal of that discount – thereby increasing how much you pay for auto insurance.
Accident Surcharge – A surcharge typically applies for an at-fault accident.
The loss of an accident-free discount typically has a pretty minimal effect on auto insurance rates, whereas an accident surcharge will noticeably increase how much you pay for auto insurance.
In addition to a surcharge, an at-fault accident also affects your eligibility for Michigan auto insurance. One of the eligibility requirements for most standard auto policies is for each driver to have no more than 6 eligibility points on their driving record. Tickets and accidents both count towards eligibility, although at-fault accidents can have an outsized effect as a first at-fault accident is generally rated as 3 eligibility points while any 2nd and subsequent at-fault accidents within a 3-year period of time are each 4 eligibility points.
A combination of two at-fault accidents (totaling 7 eligibility points) can make a driver ineligible for a standard Michigan auto insurance policy. While alternate coverage is available it’s typically considerably more expensive – reflecting the past driving experience.
With these considerations in mind your agent may caution against filing a claim for accidents with minor damages that may affect your future rates and eligibility for Michigan auto insurance.
What about accident forgiveness?
A lot of insurance companies promote “accident forgiveness” as an enticement to buy their auto insurance policy.
Accident forgiveness is typically a benefit that protects you from being surcharged for a first at-fault accident if your driving record is otherwise clean. It may be offered as a loyalty benefit or, more commonly, as a rider purchased with your auto insurance policy.
As a rider, accident forgiveness means you’re paying a little bit more now to avoid potentially paying a lot more if you have the misfortune of being at-fault in an accident. You may deem accident forgiveness to be a benefit worth purchasing – but, if so, you should know whether it’s an additional cost and how much you’re paying for that benefit.