Why you may want to rethink making an auto insurance claim

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Thinking about making an auto insurance claim for some piddling damage to your car, like that cracked windshield and broken side mirror? A new report will have you thinking twice!

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Be careful about making a claim!

InsuranceQuotes.com reports that making a claim for more than $2,000 will effectively raise your insurance rate 44% on average. A single claim like that will most heavily penalize you in California, where the average premium hike will be a whopping 78%! Massachusetts (+67%) and Wisconsin (+54%) are both similarly expensive states. On the other side of the ledger, residents of Maryland (+22%), Michigan (+24%) and Oklahoma (+25%) tend to be penalized the least on average for expensive claims.

That sounds bad enough, right? Well, as you can probably imagine, it gets a whole lot worse if a second claim is made in the same year. You’ll pay almost double for car insurance (+98%) versus a claim-free driver.

Let’s now take a look at see what other common scenarios will do to your auto insurance…

What happens to your insurance premium when you get a ticket?

Recent figures from BankRate.com suggest that less than one-third of drivers who got traffic tickets in the last five years are paying more for insurance. What really determines if you’ll pay more is the type of ticket you get. For example, a ticket for DUI/DWI, reckless driving or leaving the scene of an accident will eat you up beyond the pale.

InsuranceQuotes.com has a list of averages for what certain violations will cost you in auto insurance rates. Remember, these are averages, so your individual results may vary. But here’s the scoop: A single ticket going one to 15 miles over the limit will cause a 21% rise in your auto insurance costs. Going 16 miles over the speed limit will generally result in an insurance spike of just under 30%. What about reckless driving? A single ticket will raise your rates a massive 82%! Similarly, a first-time offense for DUI or DWI will generally increase your premium by about the same amount.

The best advice is stay nine miles or less over the posted speed limit and you’ll generally be safe. Particularly on freeways, those first nine miles over the speed limit are like a gimme from police. Of course, this is not true everywhere; this is general advice, so use your discretion!

Should you have full coverage or just liability on your vehicle?

Finally, here’s a question that confuses a lot of people: Should you have full coverage, or just liability coverage, on your vehicle?

For example, a recent poster on our Facebook page asked if she should be paying for full coverage on her fully paid 2009 Toyota Tundra. Here’s the bottom line: If you own a vehicle that’s still worth a significant amount of money, you absolutely want comprehensive coverage. So in this case, since the vehicle still has plenty of value remaining in it, it should be fully insured.


Now, you always need liability insurance, as that protects your assets in the event of an accident that’s your fault, or appears to be your fault. But when cars get about eight years old or older, that’s the time to start looking at the math for the collision and comprehensive (C&C). At some point, it becomes wiser to just become your own insurance company.

There’s a rule of thumb: Take your monthly premium for the collision and comprehensive insurance. Multiply it by 12 (or by four if you pay quarterly) to determine your yearly cost. When your yearly cost for C&C becomes greater than 10% of your car’s current value, that’s the point at which you can remove the full coverage, and just pay the liability premium. This math is based on the law of averages for accident claims.

Now of course, for some unlucky drivers, this could come back to bite you. Let’s say you remove your C&C, and just a few weeks later you total your car. In that scenario, my advice would prove to be rotten, because you’ll be liable for the expenses on your own. Statistically it’s unlikely, but it happens. If you are someone who does not have a good savings buffer, you would be better served to hold on to your C&C for a while longer, either until your car depreciates significantly, or you until you get a little more saved up.

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