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Benefits and Faults of Accident Forgiveness Insurance

By Aaron Crowe

Some days, luck isn’t on your side. Everyone can have an “off day,” as Allstate Insurance points out in an ad selling its “accident forgiveness” policies.

Allstate, Nationwide, Progressive, State Farm, GEICO and other major insurance carriers offer an insurance add-on called “accident forgiveness” to their best customers that doesn’t raise their rates if they cause an auto accident. The forgiveness is usually a one-time deal.

Drivers who buy this extra insurance can be getting a deal, especially if they have a teenage driver — a demographic prone to accidents. It may not be such a deal for good drivers, who are essentially buying extra insurance for something that may not happen because they’re good drivers anyway.

An insurance policy is meant to protect against claims for damages from an accident caused by the policyholder. Buying more insurance, some critics say, is an unnecessary expense.

How it works

Being at-fault in an auto accident can significantly cause insurance rates to rise, easily by 30 percent or more. If you have a clean driving record, the insurer will forgive the first accident you cause and won’t raise your premium. Your deductible could also drop each year afterward that you don’t have an accident.

The details differ by company. Some may give accident forgiveness immediately, while others may require up to five years of not having an accident under the policy before they’ll forgive one.

How often an insurer forgives also varies. Most forgive just the first at-fault accident, though some will start the forgiveness clock again in three to six years. Some may also require a driver not to have any moving violations for three years.

Accident forgiveness is often extended to other drivers on your policy. Nationwide, for example, extends it to teen drivers, but it can only be used for one forgiven accident per policy.

Buying the additional coverage is optional, but Nationwide says that the price can more than offset the rate increase that would kick in after an accident. An additional rate increase after an accident could make finding good insurance coverage more difficult, according to Nationwide.

Safeco Insurance, a Liberty Mutual company, has what it calls a Rewind program that forgives an at-fault accident immediately and doesn’t require several years of claims-free history.

To participate, users must install a telematic device into their car to collect data as they drive, including speed, quick starts and hard stops. The data is collected after four months to determine how safe the driver is and if the accident will be forgiven. Instead of proving you’re a safe driver before causing an accident, Rewind allows drivers to prove it afterward.

Is it worth getting?

Safe drivers with clean driving records may not benefit by buying accident forgiveness because they should already have low rates, or at least have standard policies.

But it could still be worthwhile if you want to cover the chance that you may cause an accident someday, despite never causing one so far in your driving life, says Nino Tarantino, CEO of Octo Telematics North America, which sells telematics to Safeco and other insurers.

“Even if you’re a safe driver you can get in an accident,” Tarantino says.

Insurers that offer accident forgiveness for free are probably making up the money with higher premiums overall, says David Pipes, an insurance agent at Rooney Pipes Insurance Agency in Fresno, Calif. Pipes sells auto insurance, but not accident forgiveness insurance.

“If you have accident forgiveness, that cost has been borne someplace,” Pipes says. “It’s not like a magic genie out there.”

Whether the extra insurance costs more or is offered for free, it “in no way means that the insurer simply absorbs the cost of one’s accident,” says Rob Drury, executive director of the Association of Christian Financial Advisors. However the cost is underwritten, every penny of claims expense is paid from premium revenues, says Drury, who hasn’t had “accident forgiveness” insurance but has benefitted from being a safe driver.

“In nearly 40 years of driving, I’ve had very few accidents determined to be my fault, all of them occurring before the days of ‘accident forgiveness,’” he says.

“Having been always with the same insurer, I have received a safe driver premium reduction at each and every six month renewal, including those renewal periods in which an accident occurred,” Drury says. “I didn’t receive ‘accident forgiveness.’ I received a premium that was appropriate for a driver having a claim rate below the norm for my demographic. No ‘accident forgiveness’ necessary.”

Having teenage drivers may already result in higher insurance rates from the increased risk. Buying accident forgiveness insurance could help ease the pain of rates going up after a child’s first accident, no matter how small.

To help determine if the cost is worthwhile, ask your insurer how much your rates would rise if you caused an accident. This information should be available in a surcharge schedule that outlines percentage increases from specific infractions. If the potential rate hike is less than the cost of the added insurance, then it probably isn’t worth getting.

“It’s just one thing that sounds good on a TV ad,” says Pipes, the insurance agent.