How Does Accident Affect Insurance Rate

Many times people do not consider how much an accident affect insurance rate until they receive a premium increase following the accident. In most cases insurance premiums are increased whether or not the accident was the fault of the insured.

Although many people include uninsured motorist coverage on their insurance policies, in the event of an accident their premium will be increased. This is because any monetary impact or risk on an insurance company is reflect on the insured.

The two primary reasons that premiums are increased lie with driving history and accidents. The increase may be incremental or very significant depending of the loss that the insurance company sustains in the accident.

When an accident occurs and the individual involved is fully insured, their insurance company may sustain a significant loss if the car is totaled or the individual has gap insurance which will pay the difference between the blue book value of the vehicle and the balance of the loan on the vehicle. The accident affect insurance rate because there is not only an immediate loss, but an automatic calculation is made on the risk of another loss occurring.

An accident normally will cause an increase in premiums for auto insurance for up to five years. For very young drivers and older drivers this time may be extended based on the type of calculations used which include national risk ratings.

The national risk factors are based on accidents that occur nationwide. This data is collected from every accident that occurs throughout the nation and is compiled and kept in a database. The information is then shared with insurance companies who adjust their calculation software to accommodate the changes in risk and loss factors.

When an individual seeks insurance from a different company the accident affect insurance rate for the new company as well. Individuals may find that the insurance premiums for other companies after an accident are higher than with the company they have an established policy for.

Most insurance companies build certain risks into the premiums that an individual pays from the time they first get coverage. However, even if a person is involved in a mishap on one occasion they will find the accident affect insurance rate in some manner when they renew their insurance or seek a different insurance provider.

When comparing insurance companies an individual is wise to find out what their policy is regarding accidents. If a premium can be increased significantly after one accident that is not the insured's fault then other insurance providers may provide insurance that will better meet a persons needs.