Car accidents don’t just cause mental and physical damage: they can wreak havoc on your finances too. Non-fatal car accidents cost $78,900 on average, and when there is serious physical damage or life is lost, the price tag can be quite steep. From affording a new car after a crash to the medical bills and disruption in your work income, getting into a car accident can cause a long-lasting impact on your finances and your path to recovery. The better you can navigate the financial fallout after your accident, the sooner you can focus on healing and moving on.
Create An Insurance Funding Pot
In addition to funding repairs or buying a new car, many drivers see their insurance premiums rise after an accident. Recent research by Coverage showed that drivers involved in an at-fault bodily injury see a 34 percent hike in insurance premium rates. The reason behind this is simple: insurance companies try to recoup their payouts after your accident claim.
Also, having been involved in a car accident changes your risk profile in the eyes of your insurer. As your adjudged risk rises, so will your premium. The hike in insurance premiums also depends on whether there is evidence of contributory negligence in your accident. Personal injury attorneys at JJS Justice say that some states like Massachusetts consider the extent of your fault in an accident when awarding personal damages, and so do insurance companies. However, not all accidents increase your insurance premiums. For instance, if your car was legally parked or the collision was caused by an animal, your premium may be unaffected. Speaking to an attorney and checking the terms of your policy should help you clarify this.
To get ahead of this, establish an insurance ‘emergency’ fund. With a car accident, not many consumers are prepared for the hike in insurance rates. Building up additional savings to fund the increase places less pressure on your finances during the immediate aftermath of an accident. This is also true if you end up buying a new car after an accident, since insurance rates also place some consideration on driving history. If you are looking for ways to minimize the rise in your insurance premium after an accident, try installing a dashcam or other security features on your car. You can also choose to increase your deductible or ask for a loyalty discount if you have been with the same insurer for a while.
Take A Look At And Redraft Your Current BudgetÂ
With medical bills, insurance premium hikes, repairs, and other car accident hikes, your financial outgoings will be higher than normal for the months immediately after the accident. Many consumers may even find themselves in the red, and reaching for credit cards or other forms of credit to fund the gap. Before doing so, take a look at your household budget, and cut costs where possible to fund the additional expenses. Can you reduce your spending on utilities or household bills? Are you paying too much in credit card interest every month? Find ways you can reduce your spending, not just for this month, but the foreseeable future while you get back on your feet financially. While it may not be enough to cover all accident-related expenses, it can help you repay any auto-related debt faster and avoid extortionate interest charges.
Manage Your Credit
If you find yourself unexpectedly facing a hefty car repair bill, it is not uncommon to reach for credit cards. After all, 62 percent of Americans cannot pay a $2,000 car repair bill without going into debt, according to a recent survey by AAA. While using credit is not necessarily a bad thing, you need to be mindful of how it is being used. If you have a high-interest credit card, consider the suitability of a payment plan with your auto repair mechanic or new car dealer. Be careful not to damage your credit score further during this time as well. Keep an eye on your credit utilization ratio, and ensure you only place purchases on your credit card that you can repay by the date.
Alternatively, you could look into additional sources of income, such as a second flexible job or selling your skills on freelance platforms. While there is no denying that the financial impact of a car accident can be profound, it does not have to spell financial ruin for you.