Auto Insurance And... Pothole Damage?

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There is a season between winter and spring: Pothole Season! It's all the talk around the water cooler as drivers bond over their shared distaste for crater-riddled streets. With thousands of open potholes remaining on Indianapolis streets, alone, you're probably wondering: "Will my auto insurance cover pothole damage?"

Am I Covered?

According to a 2016 AAA survey, American drivers spend on average a whopping $3 billion per year on pothole-related repairs. Flat tires or bent rims top the list for the most common types of damage. But steering, alignment, or suspension problems are also common. Are you covered for pothole damage? Your insurance policy determines that.

An auto insurance policy contains several categories of coverage - some are mandatory and others are highly recommended. Collision coverage is required if you lease or finance your car. Since collision coverage is expensive, many policyholders opt for higher deductibles in the $500-$1,000 range to keep their monthly premiums low.

However, it's collision coverage that will come to your rescue when your car is damaged after hitting a pothole. The Insurance Information Institute defines collision insurance as coverage that "pays for damage to the policyholder's car resulting from a collision with another car, object, or as a result of flipping over." Fortunately, potholes are considered objects!

Emergency roadside coverage can also be helpful if your car hits a pothole and comes out the loser. Emergency roadside insurance takes care of services such as towing, tire changes, lockouts, and fuel delivery. Most auto insurance companies offer it, but it isn’t built into every policy. Luckily, it’s an inexpensive addition. When you find yourself in a pinch, you’ll be glad you have it!  With emergency roadside coverage, you typically won’t have to pay a deductible. Another plus - using this service will not cause your premiums to increase.

To File or Not to File: That Is the Question!

Filing a claim with your insurer is the first step to getting reimbursed. Pothole damage claims are considered at-fault collision accidents. Please note that you must first pay your deductible before you’ll receive reimbursement from your insurer.

But just because your car is damaged, you shouldn’t necessarily file a claim with your insurer. In some cases it makes more sense to eat the cost of the repairs yourself. As a rule of thumb, don’t submit a claim if the cost to repair your car is less or only slightly greater than your deductible.

Will My Premiums Increase?

Any time you file a claim, be aware that your auto insurance premiums may increase at your next renewal. It’s difficult to determine whether your premiums will increase after a pothole collision claim. Esurance.com states that rates don’t always go up after such an incident. Several factors are considered including the severity of the damage and your driving history. According to DMV.org, large amounts of damage will cause steeper rate hikes.

Safe drivers, beware! If you currently receive a safe driver discount, filing a collision claim may eliminate it, causing your premiums to rise.

Other Sources of Reimbursement

Local governments across the country have systems in place to reimburse drivers who suffer pothole-related damages.  As an example, for any pothole damage that occurs on Indianapolis streets, unlucky Hoosiers can file a claim against the City of Indianapolis/Marion County within 180 days of the claimed loss. In 2017, 267 claims were filed. Only 25, or less than 10 percent, were paid out.

The State of Indiana also offers a system in which drivers can apply for reimbursement. According to public records, 738 claims were made last year and only 8 percent were reimbursed. The State of Indiana is responsible for potholes on highways and interstates, while the local municipality covers city streets.

Whether or not your claim is paid, you are still on the hook for the upfront cost. All of these government systems pay via reimbursement. This is a perfect example of why it’s important to have an emergency fund. Even if you are the safest of drivers, you can fall victim to the potholes. If or when that day comes, you’ll be glad you’re financially prepared.

Conclusion

If the cost to repair your vehicle is less than your collision deductible, pay for the repair out of pocket. If the damage is major, consider filing a claim, but think it through carefully. Your premiums may rise as a result! You could attempt to be reimbursed by the state or city for pothole damage, but the odds of that happening are slim. Best advice: Be sure to have an emergency fund in place to handle any unexpected repairs!

Kate Arndt is a Financial Planning Coordinator with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at bedelfinancial.com or email Kate.

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