The Dangers of Missing Your Car Insurance Payment

Missing your car insurance payment could result in the cancellation of your policy. Expect your rates to increase $137.75/mo on average after a lapse in coverage.

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A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Joel Ohman is the CEO of a private equity backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He has an MBA from the University of South Florida. Jo...

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Reviewed by Joel Ohman
Founder & CFP®

UPDATED: Sep 15, 2020

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Here's what you need to know...

  • You should anticipate for non-payment of auto insurance coverage is a notice in the mail from your insurer explaining your risk for policy cancellation.
  • If you cannot make the required payment, your previous auto insurance provider may not accept you back
  • If you allow a significant gap in your coverage of over 30 days then you will likely a higher premiums

The consequences you should expect for non-payment of auto insurance coverage range from minor to severe, especially if you allow the lapse to extend beyond a certain period.

If you have an automobile that you wish to drive on a public road, insurance is not an option, it is a requirement, and you need to take this seriously. You need to expect to spend a specific amount of money each year to cover the costs.

When certain events occur that affect your finances, it is best to have some type of contingency plan that helps you fulfill your obligation of paying your bill.

In some cases, even a late payment has negative implications. It is your responsibility to learn the facts so you will not suffer needlessly.

In today’s economy, it can be challenging to meet all of your needs on a consistent basis, however, failing to remit the required payment for your car insurance should not fall into this category.

Once you develop a pattern, it is very difficult to break. You could find yourself in a situation that has far worse results than you imagined.

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Policy Cancellation

The first thing you should anticipate for non-payment of auto insurance coverage is a notice in the mail from your insurer explaining your risk for policy cancellation.

If you believe this is an unfair practice, think again. Every auto insurance company has the right to terminate your policy.

Depending on the state where you reside, they generally have three reasons.

For instance, New Jersey residents receive a policy cancellation within 15 days if they fail to make timely payments, have a suspended license or the insurance company discovers fraudulent information on the application.

Most states utilize the same process and you can find the specifics by reading the auto insurance consumer rights for your area. The majority of the car insurance notices contain a deadline, denoted by a certain time.

If you make the payment before the expiration date, they will not proceed with the cancellation and will follow-up with another letter of confirmation, also called a reinstatement document.

However, should the timeframe elapse and they do not record the payment the next step is a letter verifying a complete cancellation of your auto insurance policy. Unlike the warning letter, this is permanent.

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Your Previous Provider May Not Accept You Back

If you cannot make the required payment and receive a notice of cancellation, your previous auto insurance provider may not accept you back once you do have the funds.

This often occurs when people have emergencies and use their auto insurance money for something much more time sensitive. They may have the money within a few weeks or even days after the cancellation and automatically assume they can reinstate their policy.

Unfortunately, a growing number of car insurance companies will not allow this anymore. Once they end the agreement with you, they may not want to take the chance of falling into the same situation in the future.

Remember, the auto insurance industry operates on levels of risk and now you are high-risk. You made a commitment to monthly or annual payments. Failing to live up to your side of the arrangement is not something they usually accept, regardless of the reason.

You may be able to work something out if you contact the auto insurance company before the policy terminates, especially if this is a first-time occurrence. They may offer an extension of some kind. However, if you have a sketchy history with them, the odds are not in your favor.

Searching for New Car Insurance

Since you no longer have car insurance, you must go looking for a new provider. This will not be an easy task. Wherever you go, they will have your most recent history and immediately know what happened.

If you allow a significant gap in your coverage of over 30 days then you will likely see much higher premiums than before, especially if they have a chance to review your credit history.

Although many states, like the state of Illinois, prohibit auto insurance companies from using your credit score along with prohibited factors such as gender, income, religion, nationality, or ethnic group, they can certainly use it to draw conclusions to assess the probable loss.

When you do not make your payment, this places you in a collections status. It is a fresh entry on your credit report and this does not look especially enticing. You may find it extremely difficult to obtain low-cost car insurance or even a comparable rate because of your current issues.

It could take a few years before the credit bureaus remove this derogatory information. Meanwhile, you can suffer the consequences of paying far above your previous premium amount.

Your Vehicle is At Risk

The Federal Trade Commission explains how the average cost for a new vehicle is approximately $28,000 or more today. The cost for a previously owned, or used car is $15,000 or higher. This means a large percentage of consumers have a need for financing.

Regrettably, financing or leasing a vehicle has disadvantages, one of which is a higher level of auto insurance coverage. Until you repay the loan, you do not have ownership rights.

The bank, finance company, or credit union that provides the loan may require full-coverage, rather than the state minimum. This level of protections costs much more, increasing your financial responsibility.

If your auto insurance company cancels your policy for non-payment, they notify your lender immediately. You could lose your vehicle within a few months if this happens.

The same is true for a lease agreement, even more so, because you do not plan to own the car. After the lease agreement ends, the expectation is for you to return it to the dealership.

In many cases, people who lease their cars have even less time to respond to a policy cancellation because, in theory, the automobile is only on loan and they have higher standards.

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Suspension of Registration

Neglecting to pay your auto insurance coverage also leads to the suspension of the registered vehicle. This means you may not drive until you satisfy the laws of your state. Each has their own regulations and some states report your uninsured vehicle status faster than others, like California.

The California Department of Motor Vehicles receives notification from private, passenger vehicle insurance companies electronically. As soon as your car insurance company officially cancels your agreement, they forward the update to the DMV.

You receive a notice of the intent to suspend the registration of your car within a specific timeframe.

If you fail to respond to the request of the DMV and a law enforcement officer stops you, they can impound your car. This means more money spent. You will first, need to take the proper steps to remove the suspension.

You must report to the DMV in person to accomplish this task, you cannot use their online registration form.

Upon arrival at the DMV, you will need to hand over your new auto insurance identification card and pay a fee. Usually, the cost is $100 to $150.

Once you satisfy the requirements of the DMV, you must take documented proof to the city where you received the citation. They will review the records and order a release of your vehicle. Only after you complete these two steps, can you report to the police impound to pick up your car.

Be prepared to spend a hefty amount too. Each day they retain your vehicle, they assess a fee. Some states can charge as much as $50 to $100 per day to hold your automobile. After 30 days, they ship the car to a public auction and this is something you definitely want to avoid.

All in all, if you are caught driving without insurance, you face fines that will be several hundred dollars, the impounding of your vehicle and the possible loss of your car at public auction if you cannot pay the fines in time.

Revocation of Driving Privileges

Just as your registration comes into play, so will your driving privileges. This is another type of punishment. If you allow the suspension of your registration, the next notice from the DMV is a license suspension. Not only will you forfeit the right to drive your car, but also now, you cannot drive any vehicle. It will not matter if the owner has auto insurance or not.

It generally takes about two months or 60 days after the initial cancellation of your auto insurance policy before you receive the letter from the DMV.

After which, you may have as little as 10 days or as much as 20 days to settle the matter. Again, you will need to spend more money to make things right.

You must report to the DMV, but this time, you will need to pay a restoration fee for your driver’s license. This may cost between $100 and $250. In some states, if you prolong the process, they could even require you to re-test.

There are so many ways to avoid these disasters by being wise with your budget. If you can make smart decisions on how you spend your money, you will not have to deal with the pain and inconvenience involved. It is better that you start now to ensure that you have a worry-free driving experience.

Great car insurance rates are stress-free to find when you use the free comparison tool and enter your ZIP code!

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