Can I get auto insurance if I owe another company?

Can you get auto insurance if you owe another company? Owing an insurer money after canceling your auto insurance policy is very rare, but can happen. You can purchase a policy from a new company, but failing to pay the old insurer will reduce your credit score and increase your future insurance rates by up to 127 percent. Finding affordable auto insurance rates doesn't have to be impossible.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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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, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Oct 21, 2020

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Things to Remember

  • You can purchase auto insurance from a different company even if you still owe money to another insurance provider, however not paying your bill will impact your credit score.
  • It is very rare to owe an insurance company money after your policy has been canceled or terminated.
  • A poor credit score can increase your auto insurance rates by up to 127 percent. A fair credit score will increase your rates by around 31 percent.

Can you get new auto insurance if you owe another company money? What happens if you need to buy a new auto insurance policy from a different company but still owe your previous insurer? You can buy a policy from a new insurer even if you still owe money to a different company.

However, there are only a few circumstances where you’ll actually owe an insurance company money after canceling your auto 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, and how to cancel auto insurance properly. 

If you’re shopping for new auto insurance coverage because you don’t think you’re getting the cheapest auto insurance rates for your needs, pay your old company off first. Enter your ZIP code into our FREE online tool to get multiple quotes and start comparing your new rates.

Getting Auto Insurance if You Owe Another Company

You can buy an auto insurance policy from another company even if you still owe money to a different company. However, you’ll want to pay off the other insurance company quickly, and should expect your premiums to be higher than before. 

Because of the way auto insurance policies are billed, owing an insurer money is actually very rare. But any unpaid insurance premiums will affect your 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 impact on your auto insurance rates with your new insurer, because credit score is often a factor in how your rates are adjusted.

Take a look at the table below to see how your credit score can affect your rates.

Average Annual Auto Insurance Rates by Credit Score
Auto Insurance CompanyGood Credit ScoreFair Credit ScorePoor Credit Score
USAA$1,821.20$2,219.83$3,690.73
State Farm$2,174.26$2,853.00$4,951.20
Geico$2,434.82$2,986.79$4,259.50
American Family$2,691.74$3,169.53$4,467.98
Nationwide$2,925.94$3,254.83$4,083.29
Progressive$3,628.85$3,956.31$4,737.64
Farmers$3,677.12$3,899.41$4,864.14
Allstate$3,859.66$4,581.16$6,490.65
Travelers$4,058.97$4,344.10$5,160.22
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. With a poor credit score, your rates may increase by as much as 127 percent.

There are very few ways you might end up owing an insurance company money after canceling your coverage.

You pay for insurance coverage in advance, so if you miss a payment, you simply lose insurance coverage. We discuss this in more detail later on, but this billing program prevents you from accumulating a large amount of debt.

One way that you might wind up owing a balance to your auto insurance provider is when you endorse your policy and you make a backdated change. Backdating means you mark the date of a policy change or addition as a past date prior to the actual day you requested the changes. 

Be very careful. Backdating a change isn’t very common and often is a form of insurance fraud. According to the FBI, insurance fraud costs Americans $40 billion annually. Backdating a policy can be insurance fraud because it enables you to use insurance to pay for claims that did not actually happen at the time of coverage. 

You must have the right paperwork and the right reasons, as well as an agent who thoroughly understands the backdating laws. By making a legal back-dated change, you could 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.

In some cases, auto insurance endorsements can also cause you to owe money to an insurance provider. Watch the following video from eHowFinance for more information on how an endorsement can lead to owing an insurance company. 

If you are in one of the rare scenarios where you owe an insurance company money and are also switching insurance providers, make sure you make that final payment. 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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Making Payments on Your Auto Insurance Policy

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. 

Not only will this help you budget properly before you enter into any contracts, but it will also prevent your policy from getting canceled by the insurer for missing too many payments. 

According to the Insurance Information Institute, one common reason why auto insurance policies are canceled early by an insurer is because of late or skipped payments, which will harm your credit score. As you already know, a poor credit score often leads to higher auto insurance premiums.

Read on to better understand all you need to know about the auto insurance billing process. 

How is auto insurance billed?

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. 

Your payments can be made annually, biannually, and in some cases even monthly. Talk with your insurance agent to determine which billing cycle makes the most sense for you. 

Whether you choose to pay for the full 6-month policy upfront or monthly, you are always paying in advance for your auto insurance coverage.

It’s often really easy to dig yourself into a hole when you’re paying for past due charges. 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.

Because your pay in advance for auto insurance coverage, it is actually pretty 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.

Will I be charged for an auto insurance grace period?

If you skip an auto insurance payment, at most, your insurance company will give you a 30-day grace period to make a late payment. However, it’s more standard for insurance companies to give you between 10 to 14 days to submit any past-due payments. 

A grace period for auto insurance payments is the 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.

During the grace period, your insurance provider will often send you a notice that your policy will be canceled due to non-payment if you are unable to pay on time.

In many states, sending out a 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 anything extra. In general, a carrier won’t charge you additional costs after you’ve been given notice that your policy will be canceled for non-payment.

Auto Insurance Policy Cancellation and Purchasing a New Policy

Now that we know how auto 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.

We’ll also discuss 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. Other insurance companies with access to this information will likely charge you higher rates because you will appear as a riskier client to insure.

What happens when you let your auto insurance lapse?

Letting your auto insurance lapse means you stopped paying for coverage and did not sign up to renew the policy. The result? You no longer are covered by an auto insurance policy. When you go to get auto insurance coverage again, you could be offered a high-risk rate.  

Let’s briefly discuss what type of drivers need high-risk auto insurance coverage and why. Insurance providers will consider you to be high-risk if you fall into specific categories.

Usually, those categories include being a new and inexperienced driver, getting caught driving without insurance or a license, causing too many accidents, or committing too many traffic violations. 

Because a lapsed policy is the same thing as not having auto insurance, insurance providers often treat it as if you’ve been caught driving without insurance.

Therefore, you get placed into the high-risk category instead of receiving the preferred rates. Even if your insurance only lapsed for a week or two, you most likely will still be considered higher-risk.

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. 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. Insurance providers are more interested in knowing whether or not you’ve maintained insurance coverage. 

To reiterate, insurance companies see a lapse in coverage to mean that you drove on the roads for a period of time without being legally insured. That type of dangerous behavior leads to increases in auto insurance premiums. 

The Bottom Line: Can I get auto insurance if I owe another company?

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:

  • 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 to an insurer 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 future rates.

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

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

So, can you get new car insurance if you owe another company? Hopefully you know the answer to this, but if you still have questions about owing an insurance company money and purchasing another policy from a different company?

Read through these frequently asked questions below 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 auto insurance can go to collections (or both).

#2 – Is it bad to switch insurance companies?

Switching auto 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 auto 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. Your driving record can have a significant effect 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.

Whether you owe another insurance company money or not, enter your five-digit ZIP code into our FREE quote tool below to find auto insurance quotes so you’re ready to start a new policy as soon as you’ve closed out your old one.

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