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UPDATED: Mar 13, 2020
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Since all but two states have compulsory car insurance laws, it’s safe to assume you could face serious problems if you’re caught driving without insurance. But what if you simply miss a payment? Consequences for missing insurance payments will be different depending on the state in which you live and the insurance company in which you purchased your policy.
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Before we talk about the consequences of missing a car insurance payment, let’s draw a clear distinction between doing that and simply being late on a payment. The two are entirely different. For example, if you still pay your insurance bills using standard postal mail you may send your check or week before it’s due but find that it still does not post your account in time. When it posts a couple of days later you have not missed a payment, you’re simply late due to factors beyond your control.
Insurance Company Policies Differ
It’s quite common for large companies that deal with a lot of checks to hire a check processing company to handle their payments for them. With this third-party in the mix, it’s also not uncommon for checks to take up to a week before they’re posted to your account.
Companies who use third-party check processors typically adjust their policies to allow for late payments that may result from inefficiencies by the check processor.
That said; some insurance companies print a notice on their bills telling customers that checks should be put in the mail no later than 10 days prior to the due date. This ensures the payment will be posted to a customer account on time, under normal circumstances. If you’re not sure what your car insurance company’s policy is regarding check posting, it’s important you find out so you’re not inadvertently assessed with a late payment fee.
Other insurance companies handle payment processing themselves and will credit your account as soon as the check is received, regardless of the date gets posted. This gives you more leeway in terms of making your payment later. But again, you need to check with your insurance company to find their policy before you make a decision about when the best time to pay your bill is.
Insurance Policy Lapses
In some cases, an insurance company may offer you a grace period of 5 to 10 business days to account for late payments that might be missed in the mail. In other cases, your insurance company will cancel your policy at midnight on your due date if payment is not received. In either case, if the policy lapse occurs because of lack of payment you’ll need to find out what your state requires in order to straighten things out.
The first thing you need to know is whether your insurance company automatically reports your insurance lapse to your state. In North Carolina for example, insurance companies are required by law to notify the state DMV immediately upon policy cancellation or lapse. Drivers then have 10 days to respond by providing appropriate proof of insurance coverage or turn in their license plates and registration.
If your insurance company is amenable to offering you a grace period your policy won’t be canceled immediately and your state won’t be notified. Be sure to make a payment within the grace period or they will be forced to take further action.
In most cases, you will receive a notification from your state insurance department or DMV within 30 days of an insurance lapse or cancellation. Outlined in that letter are the steps you’re required to take in order to avoid action being taken against you. In Connecticut, drivers receive a warning letter that allows them to keep their license and registration in force if they provide proper proof of insurance, provide what the state calls a letter of consent, and pay a $200 fine.
A driver who cannot afford to reinstate his insurance in Connecticut has two additional options. The first option is to surrender his registration plates and put them on hold until he can reinstate insurance. The other option is to surrender the registration plates permanently and take the car off the road. If a driver exercises either option within the timeframe laid out by the warning letter no further penalties will be assessed.
States with Non-Permanent License Tags
In states like New York, license plate tags are not permanently affixed to a vehicle. You get new tags when you purchase a new vehicle. Those tags can then be transferred to subsequent vehicles you might purchase or turned in and destroyed when you no longer have a vehicle on the road. In states like these, you risk the suspension of your registration and plates if you miss an insurance payment that allows your policy lapse.
In New York the law requires drivers to surrender their registration and license plates before their insurance lapses if they are planning to permanently cancel a policy. If you miss a payment, causing a temporary lapse, you can avoid having to surrender your registration plates by procuring insurance and paying a fine within a certain period of time. Failure to do so will result in a suspension of your license and registration.
You can avoid the suspensions by turning in your registration plates within 90 days of your insurance lapse. You’ll also have to pay a fine at this time as well. Doing so allows you to immediately put a new vehicle on the road when you’re ready to purchase insurance and pay for the registration. Otherwise, you could be banned from doing so for up to a year.
Providing Fraudulent Proof of Insurance
If you should miss a payment that causes a lapse in your auto insurance, and you knowingly submit an insurance ID card to a police officer, you could be charged with insurance fraud. Such charges are serious business in most states. For example, if you’re found guilty of producing a fraudulent insurance instrument in Maryland you could face a fine of up to $1,000 plus jail time.
If you’re caught driving without insurance you’re better off just being honest about it up front.
If stopped while having no insurance, you will receive a citation, have your license and registration temporarily suspended, and possibly have your vehicle towed to the local impound lot. But that’s far better than stiff fines and a stint in the county jail.
Increased Insurance Rates
Policy lapses as result of missing payments can also sometimes results in premium increases. Whether or not your particular insurance company would raise your rates depends on their policy. However, when rates are raised, it’s based on the fact that your tendency to miss payments opens your insurance company to greater risk. They need to compensate for that risk by charging you more.
If you’ve been a good customer and haven’t missed payments over several years, your insurance company might forgive one or two missed payments before raising your rates. However, if late or missing payments are normal for you, don’t expect much grace from your insurance company. You may have to find a new insurance provider if your rates are raised beyond what you’re able to afford.
You may find that missing payments repeatedly results in your insurance company dropping you altogether.
In most states, insurance companies have the legal right to drop you for nonpayment. Being dropped will go on your record, a situation that would show up on a credit report or a DMV history. The good news is that a new insurance company could not refuse you coverage based on this fact alone. The bad news is that they can still put you in higher risk pool and charge you more.
Credit Rating and Reporting
Every company or financial institution you deal with has the potential to report negative financial activity to the nation’s major credit reporting agencies. You can bet most car insurance companies will take that opportunity. They do so mainly because their survival as a business depends on customers paying their premiums on time.Believe it or not, insurance companies take into account your credit rating and score when determining your rates. So if your former insurance company canceled your policy because of a missed payment, and then reported it, any new insurance company that checks your credit rating would see that blemish. That blemish will be reason for higher rates.
No matter how you look at it, missing an insurance payment is never a good idea.
Missing a payment can trigger a lapse in your policy that would lead to further problems with both the state and your insurance company. At the state level, you could face moderate to severe fines, suspension of your license and registration, and potentially even jail time. It’s simply not worth it to take the chance.
From the perspective of an insurance company, you will most likely face higher rates if you miss payments repeatedly. Even if you switch companies, repeated missed payments will work against you. If your insurance is more expensive than you can afford you’re better off surrendering your registration, canceling your policy, and waiting until you can afford it before you try again.
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