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“But My Rates Will Go Up”: Debunking an Age-Old Insurance Myth

Article By Bob Johnson in The real world

JJ-Blog-072216Swallow gum, and it’ll stay in your stomach for seven years. Make a face, and it will get stuck like that. Go outside with wet hair, and you’ll catch a cold. We grow up hearing all kinds of myths. We tend to think we’re less gullible when we get older, but some misconceptions persist into adulthood. One of the most widespread? Your insurance rates will go up if you file a claim—even if you’re not at fault.

I work with lots of clients who’ve been hit by other drivers. More often than not, my clients are afraid to file claims with their own insurance companies. Drivers think their rates will rise as a result. The good news is: Insurance rates don’t work that way.

Here’s why you shouldn’t be afraid to file a claim for a car crash that wasn’t your fault:

1. Many factors affect insurance rates. Insurance companies set rates by calculating the likelihood you’ll have to make a claim in the future, not the number of wrecks you’ve had in the past. They don’t release exact formulas for this calculation, but they consider many factors, including where you live, how far you typically drive, and even your credit score. Your driving history is only one consideration.

2. All car crashes are not created equal. There’s a difference between an accident you caused and one someone else caused. If you have a good driving record and weren’t at fault, your insurance company probably won’t penalize you for another driver’s error.

3. The other driver’s insurance may not cover your costs. One in seven drivers is uninsured, and many insured drivers only buy the minimum coverage required by law. If an uninsured or underinsured driver hits you, you could wind up with car repairs and medical bills that his or her insurance won’t cover.

4. Your insurance company may provide higher quality repairs. You’re only a third party when it comes to another driver’s insurance policy, but your own insurance policy is a direct agreement between you and your insurer. By Indiana state law, this gives you additional rights. For example, if you demand original manufacturer’s parts instead of off-brand replacements, your insurance company has to honor that request.

5. Paying for a car crash yourself could cost more than rate increases. Whether you file a claim or not, your rates will likely fluctuate over time. But these rate increases probably won’t exceed the costs of a crash. Let’s say you file a $5,000 claim. It would take an increase of $200 a year over 25 years for the adjusted rate to cost you more than the repair itself. A single claim is unlikely to affect your rates that drastically, and even if it did, you’d be able to pay it over 25 years instead of all at once.

Insurance laws do vary by state, so it’s always smart to ask a lawyer in your area for advice after an accident. Additionally, the other driver’s insurance should cover at least part of the damages. But if there’s a gap in coverage, don’t let fear of higher rates keep you from filing a claim. After all, that’s one of the reasons you bought insurance in the first place. And don’t worry if you accidentally swallow gum either. It won’t really stay in your stomach for seven years.