Can I get auto insurance if I owe another company?

You can get auto insurance if you owe another company, but failing to settle up will reduce your credit score and increase your future insurance rates by up to 127 percent.

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Mathew B. Sims is Editor-in-Chief and has authored, edited, and contributed to several books. He has been working in the insurance industry ensuring content is accurate for consumers who are searching for the best policies and rates...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance...

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Reviewed byDaniel Walker
Licensed Insurance Agent

UPDATED: Jun 29, 2020

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Summary Stats
SummaryFrom the Experts...
Credit can affect your insurance ratesInsurance Information Institute
Fair credit can result in an increase in rates of up to 31% over rates based on a good credit scoreQuadrant Information Services
Poor credit can result in an increase in rates of up to 127% over rates based on a good credit scoreQuadrant Information Services
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There are a handful of different ways you can go about paying your auto insurance rates. It’s nice to pay the entire amount off at once if you have the funds available, but there are other installment options you can set up to ensure you can afford to pay your bill when it’s due. Failing to make even a single payment by the due date can result in fees and policy termination.

So what happens if you need to buy a new policy from a different company? Can you get auto insurance if you owe another company? The short answer is yes. However, there are only a few circumstances where you’ll actually owe an insurance company money after canceling your car insurance policy with them.

Typically, even when a policy is canceled for non-payment, you won’t actually owe your old company money. This is because of the way that premiums are invoiced. It’s only in rare cases that you’ll have an account balance when your account is inactive. Read this article to find out what might happen if you owe another insurer money.

If you’re shopping for new auto insurance coverage because you don’t think you’re getting the cheapest car insurance rates for your needs pay your old company off first. Then use your ZIP code to get a free quote and start comparing rates.

Auto Insurance Billing Basics

Knowing the basics of insurance billing can be really helpful when you’re shopping around for coverage. It will help you understand why a certain amount of money is due when you start your coverage, and why the remaining balance is due on certain dates. This will help you budget properly before you enter into any contracts. Keep reading to learn more

How is auto insurance billed?

The rates for personal auto insurance aren’t billed in the same way that charges for things like your TV or internet are. When you receive an auto insurance bill, you’re not paying for the coverage that you’ve already used.

Instead, you’re getting invoiced for the portion of your rates that will apply to the upcoming coverage period (this can be annual, biannual, and in some cases monthly, which can be offered through insurance companies and in states like Massachusetts, is specifically defined as a payment plan approved by the state). This means that instead of paying in arrears, you are paying in advance for your coverage.

Will I owe my old auto insurance company money?

It’s really easy to dig yourself into a hole when you’re paying for past charges in arrears. For example, when you’re paying your cable bill for the month of November in either December or January it’s easy to watch your balance add up, especially when the company allows you an added grace period to make your payment.

Recall that you pay in advance for auto insurance coverage, rather than in arrears. This means that one of the good things about the way your insurance invoices work is that it’s difficult to dig yourself into this deep hole.

You can’t put off paying your insurance bill for one or two months and then be left trying to scrounge up enough money to make the minimum payment due, because if you don’t pay, you simply won’t be covered. You have to pay what’s due when it’s due. That’s why you usually won’t owe your past insurer money even if you end on bad terms.

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Will I be charged for a grace period?

A grace period for auto insurance payments is an amount of time you have to submit your payment to the company before the contract will officially be terminated. Some companies offer very short grace periods, but even with a grace period, you still have to make payment quickly or the coverage ends.

Typically you insurance company will give you a 30-day at most. It’s more standard for insurance companies to give you between 10 to 14 days to submit your payment. Giving you this time will also give the company time to send you a notice that your policy will be canceled if you don’t pay.

In many states, like New Jersey for example, sending out this notice is actually a requirement before the company can legally terminate your coverage.

Typically, the coverage that is granted during this time won’t cost you. In general, a carrier won’t charge you additional costs after they’ve given you notice that your policy will be canceled for non-payment.

Will I owe a balance after endorsing a policy?

One way that you might wind up accumulating a balance due to your car insurance provider is when you endorse your policy and you make a backdated change. Backdating a change isn’t very common and you must have the right paperwork, but sometimes the agent is willing to do it.

By making a back-dated change, you will have a prorated balance due for the added coverage. That means that the insurance company must bill you for that prorated difference during an upcoming billing period.

If you don’t pay that invoice, you may wind up owing the company money even after the policy has lapsed.

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Auto Insurance Policy Cancellation and Purchasing a New Policy

Now that we know how car insurance is billed, and a few instances in which you may owe money to your insurer, even after you’ve canceled your policy with them, let’s spend a few minutes discussing what happens when your insurance policy lapses, how a lapse in coverage can affect your rates, and what might happen to your rates if you don’t pay your outstanding balance with your previous insurer.

How can an insurer verify your insurance history?

Insurance companies use electronic programs to communicate with one another. Often, a company will enter past clients’ information into the system and note that their policy was canceled on a certain date. If another company runs this report and sees you have a termination for non-payment, your quote may be adjusted as a result.

What happens when you let your auto insurance lapse?

If you signed up for an auto loan and didn’t pay your lender, that information will be found on your credit report. Any future lenders will be able to see you had a bad payment history with your prior finance company. It’s a little more complicated when you have a bad payment history with your insurance company.

In the insurance industry your reputation, payment, and insurance history do matter, but not in quite the same way those things matter to a creditor. Insurance providers are more interested in knowing whether or not you’ve maintained insurance coverage.

If you’ve had any lapses in coverage, this may affect your rates. Having an insurance lapse, even it’s only a lapse for a week or two, is enough for the company to offer you a high-risk rate instead of a preferred rate.

Will an unpaid insurance premium affect my insurance rates?

Though your coverage history is more important than unpaid bills, if you continue to leave your outstanding bill unpaid, it will eventually negatively affect your credit score. If this happens, it may also have an affect on your auto insurance rates with your new insurer, because credit score is a factor in how your rates are adjusted.

Watch this video to learn how poor credit affected one driver in Michigan.

Take a look at this table, populated with average national rate data from Quadrant Information Services, to see how credit score can affect your rates.

Average Annual Rates by Company, Adjusted by Credit Score
Auto Insurance CompanyAverage Annual Rates with a Good Credit ScoreAverage Annual Rates with a Fair Credit ScoreAverage Annual Rates with a Poor Credit Score
State Farm$2,174.26$2,853.00$4,951.20
American Family$2,691.74$3,169.53$4,467.98
Liberty Mutual$4,388.18$5,604.24$8,802.22
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As the data shows, you’ll get the best rates with a good credit score, while with a fair score, your rates can increase by up to an average of 31 percent and with a poor credit score, your rates may increase by as much as 127 percent.

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The Bottom Line: Owing Auto Insurance Companies Money

To summarize what we’ve discussed regarding owing money to an auto insurance company after you’ve canceled your policy with them, keep in mind:

  • Managing two auto insurance policies is not an ideal situation
  • When you buy auto insurance, you’ll pay for coverage in advance, regardless of your payment plan
  • Typically, the only time you’ll owe money in arrears is when you make a backdated change and you’re charged the prorated difference
  • If you don’t pay the billed difference or the amount due, you’ll get a notice of nonpayment of premiums
  • When your insurance is canceled for non-payment, it can affect your rates

Bottom line? Don’t leave insurance bills unpaid for too long, as it can affect your rates, though it won’t prohibit you from purchasing a policy from a different company.

Frequently Asked Questions: Can I get auto insurance if I owe another company?

Still have questions about owing an insurance company money and purchasing another policy from a different company? Read through these frequently asked questions to learn more.

#1 – Can auto insurance send you to collections?

If you don’t pay your auto insurance premiums, either your insurance coverage will be canceled or your unpaid car insurance can go to collections (or both).

#2 – Is it bad to switch insurance companies?

Switching car insurance companies isn’t a bad thing, and in many cases can save you money. In some cases, it may even be required. For example, if you’re insured by Progressive and you move somewhere where Progressive isn’t offered, you’ll have to switch auto insurance companies to one that sells insurance in your new area of residence.

#3 – What happens if you don’t pay your auto insurance?

If you don’t pay your auto insurance, your policy will lapse. This means if you’re pulled over, you’ll be violating the laws regarding maintaining minimum coverage in order to legally drive. You might end up facing fines, license suspension, and removal of your driving privileges.

If your insurance lapses on a financed car, the lender can repossess the car or you may end up having the cost of force-placed insurance added to your car payment, if you don’t repurchase insurance coverage.

#4 – What can you do if you can’t afford auto insurance?

If you can’t afford auto insurance, there are a few things you can do to lower your rates. When you’re looking for cheap car insurance, start by comparing rates. You can also find out what discounts you may qualify for. You should also drive responsibly, so you not only qualify for good driver discounts, but your base rates are calculated lower (driving record can have a significant affect on how your rates are adjusted). Finally, speak to a licensed insurance agent to find out what other options may be available.

#5 – What happens if I pay my auto insurance late?

If you pay your auto insurance late, your coverage may be suspended, resulting in a lapse in coverage. Additionally, you may end up being charged a daily late fee until you pay your outstanding bill.

Before you go, use your ZIP code to get a free quote on auto insurance so you can start a new policy as soon as you’ve closed out your old one.

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