Credit: Shutterstock photoIn a cutthroat auto insurance market that could rival Game of Thrones, auto insurance companies are ever finding ways to lure you to their business. One program you have probably seen frequently advertised on commercials is accident forgiveness. Every major insurer from State Farm down to Travelers offers some sort of program that will forgive you for getting into an accident and not raise your rates. The program seems simple, but is in fact quite complex and may not even be necessary.
The Cost of Accidents
The first step toward understanding accident forgiveness is to know how an accident can affect your rates. To be clear, when we say “accident” we mean a car collision in which you were deemed over 50% “at-fault”. Auto insurance companies for the most part only qualify accidents in which you were the primary cause such as rear ending someone, or crashing into someone who had the ‘right-of-way’. There is also a threshold for how costly the accident is that determines whether a company will charge you for it. For example, companies like Progressive will not negatively charge you for accidents that cause less than $500 worth of damage.
So, if you are in an accident that is costly and your fault, you should expect your rates to soar. We conducted a small study of five states and found that after an accident, which causes personal and vehicle damage, rates increased by an average of 33% for a 30-year-old male driver. For younger drivers, rates should be expected to be higher and for people with unclean driving records, even higher than that. Bottom line, a chargeable accident will be costly. If you had accident forgiveness though, it would all go away. Unfortunately, it is not always that simple.
Who Qualifies for Accident Forgiveness
Auto insurance companies make their money when you drive safely and pay your monthly premiums. They lose money however if you get into accident. If its a big accident, they may end up paying more than you pay them in premiums in a year. Basically, an accident forgiveness program is the auto insurance company forgiving you for losing them money, so understandably, they can make it kind of difficult to qualify.
The first hurdle is finding out if your company even offers it in your state. In New York and North Carolina for example, you cannot get USAA accident forgiveness while in Alabama, Progressive and Allstate do not offer it. Next, even if your company does offer accident forgiveness, there is a good chance you haven’t proven your “safeness” enough to them. State Farm for example requires you to be a safe driver for them for nine years before they’ll forgive an accident. Some companies are a bit easier. Progressive and Travelers "only" require five years of clean driving under their policy. Other companies go one step further and do not require you to be safe under one of their policies, like Liberty Mutual, but do require you’ve been accident free for at least three to five years prior to your policy start.
Allstate, and Nationwide operate a bit differently, allowing you to purchase accident forgiveness as an add-on. Allstate has different tiers of coverage, and if you pay extra for Gold or Platinum "Your Choice Auto", you get accident forgiveness immediately without needing to prove your "safeness". We found the cost for Platinum could be an extra $70 a year while Nationwide about $48 extra per year.
Is it worth it?
Accident forgiveness is certainly worth having if the price is right. At the end of the day, the most cost effective way to get accident forgiveness is to pay your dues with companies like GEICO and Progressive who won’t charge you extra for it. The only problem is you will have to prove yourself for some years.
If you are buying auto insurance for the first time or looking for a new company, Allstate’s Gold and Premium package could be a good way to go--if it is cost effective. You always want to shop around when it comes to auto insurance. Prices can change dramatically between towns and cities, so it is important to determine who is cheapest in your city. If Allstate Gold is going to cost you $1,600 a year, but GEICO, without accident forgiveness, will cost you $1,000 a year, its not worth to buy unless you think an accident may raise your rates by over 60%. You also have to assess how great of a risk are you to get into an accident. If you are a safe driver, or don't drive often, the likelihood of you getting into an at-fault accident is smaller so perhaps you should not spend extra for a program you will most likely qualify for free for in a few years. You will want to plug in quotes for every company available to you, see which ones will raise your rates the most after an accident, and which one gives you accident forgiveness for the smallest amount of effort and money.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
