Does It Really Matter if I Pay My Insurance Premiums Late?
I remember an old sitcom about a family where money was tight and they had a lot of bills to pay. What did they do? Well, to buy some time, they sent their electric bill payment to the water company and the water bill payment to the electric company. Then they pretended they never received the gas bill by wadding up the bill, throwing it up in the air, thus buying themselves a few days. While pretty funny on TV, there are some real life consequences for late payments that aren’t too funny.
Paying your insurance premiums late on a regular basis can affect you negatively. How?
1. You May Be Required to Pay Your Entire Premium up-front
Each time an insurance company has to issue a Cancellation Notice, it costs them money to process this paperwork. Once they receive the payment they have to issue a Reinstatement Notice advising that payment has been received and there is no lapse in coverage. If the coverage was legally required insurance, such as Workers’ Compensation or Automobile Insurance, they also have to notify the regulatory agency so that the insured is not fined for any lapse in coverage. After numerous cancellations, some insurance carriers penalize customers by refusing to allow installments and requiring that the entire premium be paid up-front.
2. Insurance Companies are NOT Required to Reinstate a Policy
Did you know that in most states an insurance company is NOT required to reinstate a policy? While a carrier will usually reinstate, for clients that repetitively have Cancellation Notices, they can decide not to reinstate the policy and simply return your payment. The result is that you now have to find insurance elsewhere.
3. Your New Insurance Policy May Cost More
Now, since your policy was cancelled for non-payment of premium, most carriers when approached for a replacement policy, will check your past payment history. Since late payments invariably affect your credit score, you are likely to be offered coverage at a higher price. Some carriers refuse to offer quotes to insureds who have been cancelled for non-payment within the last three years!
So as you can see, it simply doesn’t pay to play the late-pay game with your insurance. If you are one that simply forgets to pay, you might consider signing up for “Electronic Funds Transfer” where the carrier will automatically transfer the funds from your bank account on a specified date. Either way, if you’ve had a few Cancellation Notices within the same policy period, discuss this with your agent so that you don’t suffer the consequences of late payments.
By Ray Alvarez, AAI, AIS
