What happens if you can’t afford to pay your insurance premium for your car? We live in an uncertain world. The stock market changes, you lose your job or are hit with an unexpected medical bill — there are many situations that can plunge a person into difficult financial straits.
In situations where you must tighten your belt or cut costs rapidly, one of the first things most people choose to do is cancel their auto insurance policy. This, of course, begs the question, what happens then?
If you can’t afford car insurance (and stop paying) you will face some consequences, but you have options too. In this article we’ll examine:
We will examine:
What Happens if You Stop Paying Your Premiums?
How Late Can You Be and What About Grace Periods?
How To Prevent a Lapse in In Your Insurance?
How Can You Turn Your Insurance Back on After A Lapse?
Let’s get started…
What Happens if You Stop Paying Your Premiums?
In a perfect world insurance companies would be lenient with people who are struggling. The reality is that they are not. If you fail to pay your premiums, you can expect your insurance policy to be canceled, and in some cases, the policy may even be invalid from the date the missed payment was due.
Each state has different rules regarding how quickly an insurer can kick you off of coverage for nonpayment. But all of them allow a termination of the policy if bills go unpaid.
Not every carrier is going to cancel your policy immediately; these companies value your business after all. But a typical response may be an automated phone call or a notice in the mail saying you will be removed from coverage if balances are not paid by a certain date.
Also, be sure to pay attention to the small print. Many companies require that a balance is paid by the due date — it is not enough to simply have a check mailed by that time.
Individual regulations depend on the carrier. All major insurance companies have FAQ sections on their websites that may help you shed light on your specifics.
Here are a few:
If you still have any doubt regarding the actions your insurance provider is going to take if your premiums go unpaid then you should give them a call.
How Late Can You Be and What About Grace Periods?
A common misconception is that you can pay premiums late and get away with it. This can, of course be true, in certain situations, but (as mentioned above) it is not a safe to make any assumptions.
If you’ve been late on a few payments or made a high number of claims, your insurance company may use it as an opportunity to remove you from their pool.
“Grace periods” are another term that gets thrown around when it comes to late insurance payments. Many drivers believe that there is a grace period for getting your car insurance premiums paid. This is a mistake, and while many health and life insurance policies offer a grace period of a few weeks or a month, generally no such luxury exists for auto policies.
State laws will not protect you from getting kicked off insurance if you don’t pay. They do however require that an insurer gives you a defined amount of notice, which is not much consolation for most people considering the prospect of being uninsured.
If by chance you are offered a grace period for a late payment odds are you’ll pay for it in fees. The best course of action to take (if possible), is to pay on-time every time.
How To Prevent a Lapse in Your Insurance
There are a number of ways you can prevent a lapse. A good way to do this is to set up automatic payments. This works great if you have enough money, but if you’re finding insurance is becoming unaffordable there are other options:
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- Switch to another insurance company — you may be able to get a better deal.
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- Raising deductibles — when your deductibles go up, your premiums go down.
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- Choose a different vehicle — some cars are cheaper to insure.
- Dropping coverage — letting go of collision/comprehensive coverage for an older vehicle is often a good idea.
How Can You Turn Your Insurance Back on After a “Lapse”?
If you were unable to pay — or simply forgot to — your insurance will be canceled and you will be subject to what is called a “lapse.”
As defined by Investopedia:
A lapse is the cessation of a privilege, right or policy due to time or inaction, so a lapse of a privilege due to inaction occurs when the party that is to receive the benefit does not fulfill the conditions or requirements set forth by a contract or agreement [1].
In other words, a lapse is a time when you are uninsured. There are some negative things that can happen as the result of a lapse — you can be labeled a high-risk driver and face higher premiums in the future. You can also be subject to fines or suspensions, and it can even affect your credit score — and of course, if you risk it and drive uninsured you face a boatload of potential problems.
Some states will go so far as to suspend your license if your insurance falls into lapse. If the insurance company notifies the DMV you are no longer insured, they may respond by asking for confirmation of a new policy. If none arrives in a certain period of time, you may find your license suspended.
You can always apply for a new auto insurance policy after one lapses — if possible you should do this immediately. A big gap in your insurance history may indicate to the carrier that you are a risk for nonpayment, and they will then charge you more in premiums.
Summary
The best thing to do is pay your premiums diligently on time. If this is not workable for you, the next best thing to do is know the consequences and plan as best you can. Just remember:
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- If you stop paying your premiums, some insurance companies will give you a few days and some will not. Nonpayment of premiums for a long enough period will result in all policies being canceled.
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- Thinking there is a “grace period” is a common mistake many people make when it comes to paying insurance premiums late. There generally isn’t for car insurance.
- Getting your policy canceled or letting it lapse has many consequences, namely: higher premiums and the potential for fines.
Sources:
1 – Investopedia
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