Individuals who are insolvent tend to have terrible credit scores once their financial status is recorded by credit agencies. A person with an excellent credit score can save as much as 52% on vehicle insurance in comparison to someone with an adverse credit history like bankruptcy. Credit history is one of the key factors considered by nearly all car insurance companies when calculating premiums that it is difficult to escape from this scrutiny, especially when you have something as obvious and detrimental as bankruptcy in your record.
Insurance companies commit to compensating for damages caused or suffered by insured vehicles and their drivers. Therefore, they thoroughly assess applicants and take various factors into account when providing quotes. In this process, underwriters place significant importance on the financial well-being of applicants as it helps them assess the likelihood of having to pay for claims if they were to insure such people’s vehicles.
They are cautious about customers who are more likely to make frequent claims for minor incidents because they lack the financial means to cover such expenses out of pocket. Conversely, financially stable individuals are more willing to handle small scratches and dents on their own, rather than involving insurance carriers.
Can I get car insurance with a bankruptcy on my record?
While bankruptcy may prevent individuals from engaging in certain activities, such as running their own businesses, most people still need a vehicle and liability coverage to lead their daily lives and commute to work. Insurance providers generally do not refuse coverage to insolvent drivers; however, they will charge higher premiums. Most companies use credit reports while they calculate risks of claims but they don’t usually base their decision on someone’s eligibility for insurance on credit reports.
Furthermore, state laws may prevent insurers from refusing coverage due credit score (and therefore insolvency), although they are allowed to charge a lot more. And California, Hawaii, Massachusetts and Michigan don’t allow use of credit scores in premium calculations.
Unfortunately, bankruptcy often becomes the last resort for many individuals who find themselves in dire financial situations. Although they may be aware of the implications, they have no other options. Consequently, their creditworthiness suffers greatly, leading to various consequences.
If you have been declared bankrupt, your insurance premium is likely to increase, although the timing and extent of the increase can vary. If you currently have insurance coverage, the rate increase may not be immediate but will likely become evident at the next renewal.
As mentioned above, you are unlikely to be dropped by your insurer because you are bankrupt. But they may choose not to offer renewal if your money problems affected your premium payments in the past. Too many missed payments is often a red flag and many companies may choose to serve a cancellation or non-renewal notice after several late or missed premium payments.
Carriers are particularly cautious due to the potential impact on claim decisions. When individuals lack the financial means to cover vehicle damages, they rely on insurance policies for compensation. This is why many insurers provide expensive quotes to individuals with poor credit scores.
How long does bankruptcy affect vehicle insurance rates?
Chapter 13 bankruptcy remains on record for seven years before it is deleted, while chapter 7 bankruptcy is removed after 10 years from the filing date. These are significant periods in a person’s life. Throughout this time, the credit score remains extremely low, leading to substantial cost implications with most insurance companies, as they heavily consider creditworthiness.
Furthermore, it may take some time for bankruptcy to be completely removed from credit history, and even after that, the recovery process is not immediate. Rebuilding credit takes time after such a significant financial setback. However, once the bankruptcy period is over, improvement can be observed at a relatively fast pace.