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. He has also been featured on sites like UpJourney.

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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: Apr 21, 2020

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Things to remember...

  • For coverage to take effect, payment has to be made at the onset of the policy
  • You are billed for coverage before you are offered the service
  • If you can’t settle your premiums in full, the insurance company may allow you to arrange an installment plan
  • It is important to confirm if the insurer provides a grace period

What happens when you are late in making your car insurance payment? While the rules differ from one provider to the next and from state to state, it is safer to give priority to your insurance premium payments.

Some service providers might allow you as much as one month to pay your bills before considering a fee, but your auto insurance provider will not be that forgiving.

Since it’s not a guarantee that you will utilize your policy, your provider has to bill you prior for all your coverage options.

This is quite different from how many service providers charge their clients. For instance, a water company will invoice you after you have utilized a certain amount of water. This is because the cost of the service is based on consumption.

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How late is late?

While most insurers will not cancel your policy after a day or two, they certainly have a right to do that.

You may get a notification that informs you that your payment is overdue and will be nullified on a particular date if the payment is not received.

If the insurance company decides to cancel your policy instantly due to subsequent late payments, then they may not reinstate your policy once they have received your premium. In this case, you might have to start looking for a new auto insurance policy.

You are also likely to face higher premium rates in the future because insurers define your rates based on perceived risk and responsibility. Making late payments shows that you bring increased risks to the insurer.

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Does your insurance give you a grace period?

https://www.youtube.com/watch?v=hcCSXCMfQTM

Whether or not to give a grace period depends on the individual provider, although auto insurance providers are not obligated to extend your payment period.

If you are accorded a grace period, you are likely to settle it in late fees, and this effectively raises the general cost of your policy. You are better off ignoring the grace period and paying your premiums by the due date. 

There is no definite time that insurers give their clients as the grace period.

In some states, clients are given up to ten days grace period. This requirement is set to enable insurance companies to send their customers a notification in writing that their policy is about to be terminated for non-payment.

If your state doesn’t require a notice for non-payment terminations, there is no guarantee that the insurer will offer you any kind of extension.

Where the insurance department in your state has not set any requirements, the grace period can be a day or even thirty days. Check your contract or call the agent and confirm how long you have before the insurance company takes action.

Consequences for Nonpayment

Nonpayment of your premium can lead to the cancellation of your policy. Canceled car insurance will subject you to:

  • Increased premium rates in the future – insurance companies will categorize you as a high-risk driver thereby subjecting you to higher premiums.
  • An insurance lapse – If you drive without the minimum coverage, your driving record will be stained, and this might lead to fines or license suspensions. Since it is illegal to drive a car without insurance, you should try to avoid a lapse as much as possible.
  • Being a high-risk driver – Being termed a high-risk driver and thereby having a hard time finding cheap auto insurance rates and even being denied coverage in the future. However, if this happens, continue shopping around for another company that will be happy to offer auto insurance coverage.

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Will you be alerted before the cancellation?

Whether or not you are notified of upcoming legal penalties for your insurance regress depends on the state.

For instance, in some states, car insurance companies are required to send you a letter to remind you that they are no longer covering you and that your license will be suspended on a particular date unless your information is updated with the DMV.

The state driving agency could also send you a notification. If you do not respond, they will issue a certified letter demanding proof of insurance and informing the recipient that their license is suspended.

If your license gets suspended, you can only get back your driving privileges after paying a reinstatement fee and meeting any other state requirements.

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Can you change your installment plan?

People who are not able to pay their premiums in full even after the grace period can modify the payment plan before the due date.

Policyholders who are used to annual or semi-annual payments might find quarterly payments to be more sensible. If your budget is quite tight at the moment, you can even choose a monthly installment option then change it later after your finances have stabilized.

When you consider the consequences, it becomes evident that paying your auto insurance on time is the best decision you can make.

It shows your current insurer, as well as possible future insurers, that you are a dependable client who accords low risk of nonpayment.

Also, it is an easy way to avoid high auto insurance premiums, fees, and lapse in coverage that could lead to severe penalties and exposure to extreme financial risks in case of a car accident.

If your current insurer is giving you high rates that are beyond your means, you could start comparing quotes and find an insurer that is best for you. Use our FREE rate comparison tool today to find the policy that’s right for you!

References:

  1. https://www.insuranceopedia.com/definition/1464/date-of-inception-of-the-insurance-policy
  2. https://www.insurance.wa.gov/sites/default/files/documents/auto-insurance-guide.pdf
  3. http://uphelp.org/sites/default/files/resources/boggs-conditional-renewal-rules-by-state.pdf
  4. http://www.in.gov/bmv/2331.htm
  5. http://www.state.nj.us/dobi/division_consumers/pdf/everythingauto2006.pdf
  6. http://www.transport.govt.nz/research/roadcrashstatistics/highriskdriversstatistics/