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How Accident Forgiveness Affects Auto Insurance Quotes

July 31, 2015
Auto Insurance, Insurance
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Accident forgiveness is pitched as a free pass by your insurance company. If you cause a car wreck for the first time, your insurer promises not to raise your rates when the policy renews.

Rates can easily go up by thousands of dollars after an accident, depending on the extent of damage, according to a rate comparison by NerdWallet. With the prospect of higher rates always looming, accident forgiveness might look like a smart financial bet. But unlike the no-strings-attached forgiveness from your mom, getting forgiveness from an insurance company is a type of car insurance coverage that comes at a price..

How accident forgiveness works

Among insurers that offer accident forgiveness, eligibility and prices vary by company and state.

To qualify for accident forgiveness, generally you have to be a good driver with a clean driving record for anywhere from three to five years. In addition to its regular accident forgiveness feature, Erie Insurance goes a step further and guarantees lifetime accident forgiveness for policyholders who have been with the company for 15 continuous years.

Some programs apply to both at-fault accidents and minor violations. Under Travelers’ “Responsible Driver Plan” program, for instance, you get forgiveness for one accident and one minor violation (such as a speeding ticket) every three years.

The programs also vary according to which drivers on the policy are eligible. Nationwide Insurance, for example, extends accident forgiveness to other drivers on the policy, including teen drivers, but the benefit can be used for only one accident per policy, not one accident per driver. For other companies, forgiveness might not apply to everyone in your family.

Forgiveness comes at a price

Some insurers, such as Liberty Mutual, offer accident forgiveness as a perk in standard auto insurance policies to qualifying customers, either to reward loyalty or to attract new customers. But typically you’ll get higher car insurance quotes for a policy that includes accident forgiveness. The extra cost varies among insurance companies, but generally insurers say the price is less than the rate increase you’d get after an accident.

Whether you come out ahead with accident forgiveness depends on how many years you pay for the benefit before you use it. The insurance company will come out ahead if you buy accident forgiveness year after year and never cause an accident.

The only way to tell if accident forgiveness is a good deal is to compare the extra cost of the program with the insurer’s surcharge for one at-fault accident. Car insurance companies don’t advertise their “surcharge schedules,” which show when and by how much they’ll hike premiums after violations or accidents. But you can ask your agent to show you the schedule or explain how much rates will increase and for how long.

Based on that information, look at how long would you pay for accident forgiveness before the extra premium is more than a possible surcharge.

Remember that accident forgiveness from your current insurer won’t transfer to a new company if you decide to change carriers down the road for cheaper auto insurance quotes.

How much is a cheap standard auto policy? Find out with NerdWallet’s car insurance estimator tool.

Barbara Marquand is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @barbaramarquand.

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