A car accident or major traffic violation can leave you rattled,
but even scarier can be the effect on your
car insurance rates
. Here are seven words that are sure to send you screaming.
If you think the embarrassment of causing a traffic accident can
ruin your day, just wait until you see what happens to your
An at-fault accident can lead to a surcharge, which is a premium
increase tacked on to your policy for a specific period of
Ask to see company surcharge schedules or insurance point plans
when you shop for insurance. Amy Bach, executive director of the
United Policyholders consumer group, warns that the language of
such documents can be confusing. When in doubt, be sure to ask
If you get a traffic ticket, you may be able to avoid a
surcharge by appealing it, says Nina E. Kallen, an attorney who
handles insurance issues in Roslindale, Maine. And if that doesn't
work, you might try begging for mercy.
"You can always try whining," advises Erwin Adler, a Los Angeles
attorney who handles insurance cases. "If you are a longtime
policyholder, the underwriting manager may step in and do
something" just to keep your business.
Here are details on
how much rates go up after an accident
If your state department of motor vehicles decides that you are
a high-risk driver, you may be required to have an SR-22 form, also
called a certificate of financial responsibility, if you want to
keep driving. You may be required to file an SR-22 if you cause an
accident while driving without insurance or are convicted of a
traffic-related offense such as a DUI. The form proves that you
have the minimum required liability insurance.
Car insurance companies generally file the document with the
state for customers who are required to prove they have insurance.
Having an SR-22 certificate is a little bit like wearing a scarlet
letter, however. No one is eager to do business with you.
Insurers will charge more to customers who need SR-22 forms due
to the increased risk of claims, says Jim Whittle, assistant
general counsel and chief claims counsel of the American Insurance
The time your SR-22 will remain in place varies among states,
but it's usually three to five years. The only path to lower car
insurance premiums is "time and driving well," says Peter Moraga,
spokesperson for the Insurance Information Network of
If your insurance policy is canceled, it's like "a
double-whammy" says Adler. Not only have you lost your policy, you
will no doubt have to pay a higher rate in order to get another
carrier to sell you a policy. Policy cancellations are red flags
that signal high risk.
"If a person is canceled, they have to disclose it on the
[policy] application," Adler says. When the underwriter sees it,
"They will assume you were canceled for a good reason."
Reasons for cancellation include habitually failing to pay your
premium on time, misrepresenting facts on your application, or
having yourself or a member of your household lose driving
privileges because of an expired, revoked or suspended license.
To avoid cancellation, ask if your insurer will maintain your
coverage at a higher rate, Adler advises. That may seem unfair, but
it's better than having the policy canceled and trying to find a
new insurer, he says.
Missing one payment won't automatically result in cancellation,
says Moraga. "Sometimes people will forget to pay the bill, get a
notice and immediately be reinstated. And in most cases, you won't
Here are details on
the difference between cancellation and nonrenewal
of car insurance
If your driving record leaves a lot to be desired, you may be
forced to purchase auto insurance from a "nonstandard" carrier.
"You can get insurance, but you are going to have to pay through
the nose," warns Kevin Foley, a New Jersey-based independent
Adler says the nonstandard auto insurance market is not a place
that you want to be. "Most people are not going to have to go to
the nonstandard market, but those who do are going to pay a high
price. They are in a bad pool. This is not a good situation."
Only time and consistent good driving can improve your status,
but you should switch to a standard policy as soon as possible,
says Bach. "You are going to have to be proactive and continue to
shop around every time your policy comes up for renewal" until you
find a better deal, she says.
Prepare to exercise patience. Even if you maintain a spotless
record, you normally will be on the nonstandard market for three
years, says Moraga. "There is no shortcut."
"Teen" may be the scariest car insurance word of all. Your chip
off the old block is going to put a big dent in your bank account
as soon as he or she gets a driver's license and goes on your auto
Your child doesn't have to be a bad driver to cost you big
bucks. Teens in general are an enormous risk for insurers. They
lack experience, drive too fast, and frequently exercise bad
judgment. In 2010
the fatal crash rate for teen drivers
in the U.S. was nearly three times higher than for drivers age 20
Bach says you can minimize your financial hit by asking your
insurer about teen discounts, such as reduced rates for good
students. Older cars usually are cheaper to insure than newer
models, she adds. She advises you to get a policy that allows you
to designate your teen as the driver of your least expensive
Moraga says the best thing your teen can do to save you money is
maintain "a very clean driving record." Rates won't start to
improve until they reach age 25.
"Parents who add teens to their policies will see a rise from 50
percent to 100 percent," says Moraga. "If a teen gets a ticket or
gets into an accident, the cost impact will be higher than if
somebody else [in the family] did it."
Check out these top reader questions about teen drivers.
If you get into a traffic accident that requires emergency
response to come to the scene, you could get a bill for their
services, even if the accident wasn't your fault. A rising number
of municipalities around the country are charging emergency
response fees. Adler says it's "going on all over."
Municipalities have been sold on this concept as a way to raise
funds, says Moraga. "You could be driving through a community, get
into an accident and then get a bill for $2,000."
There are no standard guidelines for emergency response fees, he
adds. "Some [communities] will only charge outsiders -- people who
don't reside in the area. Others will charge everyone. Still others
will charge you only if you are at fault."
If you receive an emergency response bill, submit it to your
insurer, advises Foley. If the insurer says you're on the hook, ask
to "see where in the policy it says, 'We don't pay for that,'" he
Some states allow auto insurance companies to include
"step-down" provisions that reduce your liability limits to state
minimums if someone who's not listed on your policy crashes your
car. State minimums often are less than adequate. It's one of the
many ways you might have less car insurance than you think.
Bach says step-down provisions are a business decision made by
some insurance companies, even though it makes their policies less
appealing to consumers. They're looking to control their costs, she
says, even if some buyers go elsewhere.
Many people are not aware of what they risk by allowing someone
who is not on their policy to climb behind the wheel, says Moraga.
The first time many people find out they have a step-down provision
is after someone borrows their car and causes an accident, he adds.
"They will get a rude awakening."
Whittle says it's up to consumers to be wise shoppers and
understand what they are buying in an auto policy, so ask your
agent if your policy includes a step-down provision.