Monday, December 28, 2009

Accident forgiveness: how it works

Some insurance companies are offering "accident forgiveness" as an option or to keep a valued customer.

Here, courtesy of the National Assocation of Insurance Commissioners, are some explanations and tips:

What is accident forgiveness?

Accidents can mean expensive repair and liability costs, and lead to higher premiums. Accident forgiveness means that an insurer agrees not to increase a customer ’s premium after the driver is involved in an at-fault accident. It is an enticing perk that many insurance companies offer either as part of a standard policy to loyal customers or as an additional endorsement that drivers with a safe driving record can purchase. Some companies also use it as an incentive to new customers for switching from another insurer. Insurers will often even extend the option to parents of teenage drivers.

While accident forgiveness can seem like a “free pass,” it’s important for consumers to understand the conditions and limitations associated with this option:

1. Is there a cost involved?

In some cases, accident forgiveness is included as part of a standard car insurance policy; however, you will typically pay a higher premium for a policy that includes this added protection. More often, accident forgiveness is offered as an additional endorsement – or coverage option – for a fee. Costs vary by insurer, so check with your current insurer as well as a few others if you’re looking for the best deal.

2. Who is eligible?

As with cost, eligibility may vary by insurer. Typically, qualification for accident forgiveness protection is based on two factors:

Customer loyalty: Many insurers only offer accident forgiveness to customers who have been insured with the company for a certain number of years.

Driving record: To qualify for the benefit, many insurers require that drivers have a clean driving record for several years. Not only will insurers look at your accident history, but some consider driving violations as well. That means that one speeding ticket could impact your eligibility.

3. Are all accident forgiveness policies created equal?

In a word, no. Policy conditions can vary greatly. Some policies require you to maintain a clean driving record for up to five years before you become eligible for accident forgiveness. With other policies, the coverage kicks in immediately. Similarly, some policies offer forgiveness for one accident while others forgive multiple accidents.

4. Does accident forgiveness make sense for you?

After an accident, insurers can raise your premiums by as much as 40 percent. If you are a safe driver who pays standard rates, then depending on the cost, accident forgiveness might not make sense for you. But if you have a history of violations and accidents and already pay higher rates, then opting for the benefit might help you save money in the long run. Talk with your insurance company or agent to learn more about how your rates might be affected by an accident.