How to Avoid Premium Surcharges and Bate Hike Penalties

Unfortunately, not everyone is a perfect driver. Someday you may find yourself causing or contributing to an accident.

In all states except New York, where it was recently raised to $400, the submission of small collision claims of under $300 will not cause the insurance company to surcharge your rate and your future premiums will not be affected. However, in all states except New York, small claims of over $300 will activate the premium surcharge penalty. In such cases, it would be wiser to pay for the damages out of your pocket rather than face the .40 surcharge penalty for the next three to five years.

For example, if your current premium is $500 and you accidentally back your car into a tree, causing $450 damage, you would be far better off paying that collision claim out of your pocket than presenting it to your insurance company, which would surcharge your rate by raising it to $700 for each of the next three to five years ($500 original rate X 1.40 = $700).

The submission of this claim would force you to pay anywhere from $600 to $1,000 more in a premium ($200 surcharge X 3 or 5 years), which is far more than the original $450 claim.

On the other hand, if your damages are greater than the imminent surcharge of $600 to $1,000, it would make more sense to submit the claim and pay the extra premium over the next three to five years. If the damage amounted to $2,000 and your collision deductible was set at $200, you would collect $1,800 under your claim while being assessed a surcharge for the next three to five years. You would still be ahead of the game by anywhere from $1,200 ($1,800 reimbursement - $600 surcharge) to $800 ($1,800 reimbursement — $1,000 surcharge). But keep in mind that you would then have a chargeable accident against your driving record, which would limit your policy shopping activities to a few of the more liberal insurance companies.

In summary, it is currently safe to submit accident claims of under $300 in all states except New York, where small claims was raised to $400, because these amounts are below your state's chargeable accident threshold level and will not activate the premium surcharge penalty.

To be absolutely sure that your collision claim will not result in a premium surcharge, before submitting the claim, call your insurance representative or state insurance department to verify the chargeable accident threshold amount that is currently applicable in your state.

For collision claims of over $300 ($400 in New York), be sure to compare the amount of your claim to the sum total of the impending yearly surcharges. If your claim amount is greater than the impending premium increases, submit it.

If the claim amount is less, you would be better off taking care of the damage yourself. Call your insurance representative for help when making this decision.