Life doesn’t always go according to plan. People may have a bad month with unexpected or emergency bills and have no money in the bank when the premium is due. Most motorists know how valuable it is and wouldn’t want to lose coverage, especially over an oversight or a mistake somewhere. This view is often shared by insurers and they don’t cancel auto insurance policies immediately and often give a notice before terminating it.
A premium payment is considered late the day after the due date and it can be as early as the moment clock passes 12 pm. Most companies consider it late when they cannot collect the arranged automatic payment.
Most states require vehicle insurance companies to notify their policyholders before cancelling policies. This period can be as short as a week and as long as a month, depending on the state rules and companies. So, motorists usually have several days to fix the payment problems before their policies are cancelled. They will usually be contacted by their insurers through their chosen method like email or text and notified of missed payment and what to do next.
If this is the first incident and motorists are in good standing, most companies would carry on as usual once the premium arrears are cleared. So, policyholders should contact their insurers as soon as they realise premium installment is missed. The earlier the better to avoid further problems.
On the other hand, some insurers would stop the installment plan they agreed as soon as a policyholder is in arrears, especially if this is not the first time. Then, the only option would be to settle the remaining amount in full if you want to continue with the policy and are allowed to do so.
Furthermore, carriers are likely to charge a fee or penalty for missed payments. This will further increase the costs but people might still be happy that they won’t have a lapse on their policy, which would increase their rates when they want to buy car insurance coverage again.
Companies don’t like to see continuous coverage is broken. Usually, a lapse is no coverage for 30 days. After this period other companies would be able to see that a continuous coverage isn’t maintained and often charge higher automobile insurance prices for such applicants.
These days, many leading carriers are looking at financial indicators as a risk factor and these indicators are raising red flags when they come across an applicant with money problems. So, some of them may actually refuse to offer installment plans when they find out that the applicant isn’t good at keeping coverage or had payment issues in the past.
Usually, motorists have 3 choices when they miss auto insurance payments
Reinstate the existing policy: If they want to carry on the coverage they need to contact their current insurers and arrange a payment or a plan to settle the arrears. This is the most sensible option for people who want or need to keep at least Liability coverage. Once they clear the issues, they can still shop around and switch when they find cheaper vehicle insurance somewhere else. Reinstating will allow them to search for alternatives and get quotes with clean records.
Replace the coverage: This may be an option when people couldn’t afford the current premiums anymore. They may try to find a cheaper policy from another company to replace the current one. At times, their current car insurers may not be keen to carry on the coverage as well and make it harder to reinstate it, like asking the full outstanding premium as a condition. Any replacement should be done as quickly as possible and certainly before their notice period runs out.
Cancel the coverage: Some people stop paying their premiums when they don’t need the policy anymore because they sold their automobiles or take it off the road. They should know that they cannot drive without insurance, which would cause many problems.
Here are some of the problems with letting a policy lapse;
First of all, a break in coverage affects rates when you need to buy another policy again. If you manage to restore it or buy another in a short space of time you may be able to avoid a lapse recorded. Otherwise, it will cost you heavily because most companies charge higher rates for applicants with that in records.
One study suggests that motorists pay on average 10% higher automobile insurance rates if they have lapsed coverage in their history.
Secondly, the provider would inform the DMV as soon as the policy is dropped. Then, you have officially no coverage and don’t even need to get caught driving. DMV learned from them that the liability protection is no longer available and they can quickly check if you bought a replacement. Otherwise, they will be on your case for not having the legally required auto insurance. They are likely to ask for an explanation and request the vehicle license plates back.
Thirdly, all along you will be running the risk of having an accident while you don’t have insurance. This is probably the most important concern for anyone. Without the protection, they would have to pay for damages and injuries they caused to others and their own damages out of pocket.
Fourthly, you would be breaking the law while you don’t have a policy in force to drive or keep it on the roads. You don’t need to be driving to need coverage. Owning a vehicle is enough to make you liable to buy at least basic Liability car insurance.
And Finally, you may be in trouble with your auto loan, if you have one. They require the borrowers to maintain full coverage to protect the vehicle. So, they may either force place an alternative insurance, which would be expensive and ask you to pay it. Or they may even take the route of repossessing the car, depending on the loan conditions.
The best solution is to prevent cancellation due to financial problems by proactively managing the situation. Here are a few things you could do now that can reduce the pressure on the budget.
- Shop around for the most economical package: Many people are pretty relaxed with their expenses when they are in a good financial position. They don’t shop around hard enough. This has to change when you cannot already pay auto insurance premiums. Shopping around can save people enough money to carry on.
- Make the changes beforehand: If you anticipate that it may stretch your budget don’t wait until it becomes a problem. Make the necessary changes on coverage to reduce costs. There are a few ways of reducing premiums. Perhaps it would be easier to manage it once you bring down the costs and you won’t have issues with lateness.
Some companies are not keen to deal with people with money problems and apply surcharges for bad credit recordS or lapsed policies. That is why, it is important to manage the problem before it happens to make sure it doesn’t cause you other issues. Certainly, it isn’t easy to deal with tight budgets and this might not be on the top of the piles of bills but you should try your best to stay on top of it.