Can My Car Insurance Company Cancel My Policy if I Pay Late?

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Nearly every state in the U.S. requires drivers to carry auto insurance, but it might not come cheap to inexperienced drivers or those who have accidents in their past. Financial difficulties may cause you to miss your monthly premium payments and give your insurer the right to cancel your policy, which could leave you in a tight spot.

If your insurer revokes your coverage due to missed payments, you'll need to find a new policy elsewhere if you want to keep driving. Going without insurance could cause you to face higher rates in the future or legal consequences if you're caught behind the wheel without coverage.

The good news? All of this is avoidable. There are several strategies you can employ to save on insurance now and stay on the road.

Can My Car Insurance Be Canceled if I Don't Pay?

Just like how an electric company can shut off your power if you don't pay your bill by a certain date, car insurance companies can cancel your coverage if you default on your premium payment.

If you can't make your payments in time and the insurer does cancel your coverage, they are required to notify you. It may be via email, phone or snail mail. Some states are required to give you a certain amount of notice before canceling your policy so you have time to catch up or find another policy elsewhere. If you can make your next payment before that grace period ends, your coverage will stay active.

Prolonged non-payment generally results in a revoked insurance policy. Your insurance can also be canceled for other reasons. Here are a few other situations that could result in the cancelation of an auto insurance policy:

  • Your license is suspended or revoked.
  • You didn't provide accurate documentation, or you failed to disclose important information or made serious misrepresentations when you applied for the policy (even if unintentionally).
  • You committed insurance fraud.
  • You've received a major moving violation, a DUI/DWI or got into frequent accidents.
  • You've been diagnosed with a medical condition, such as epilepsy, that makes you unfit to drive safely.

What Are the Consequences of Having My Car Insurance Canceled?

If your car insurance is canceled due to non-payment, you may face some other ramifications in addition to losing coverage.

Your insurance company could send an unpaid account to collections, for example, causing significant damage to your credit. A lower credit score can make it harder to get approved for loans, credit cards, housing, utilities or anything else that requires a credit check. In situations where you are approved for financing, you'll likely face higher interest rates. Additionally, having a policy cancellation in your past can cause future insurers to charge you more for a new policy. A lapse in coverage following a cancellation can result in fees and compound future rate hikes.

When a driver's car insurance policy is canceled, the insurer notifies the appropriate motor vehicles department. Some states require an insurance to be in place for the entire duration of a vehicle's registration period, and may require tags to be surrendered if new coverage isn't secured.

Driving without insurance coverage could result in stiff fines, higher insurance premiums in the future, and the loss of your license. Plus, if you get in an accident while you don't have insurance, you may have to pay all of the costs out of pocket. If your car is leased, driving without insurance may get your car repossessed.

How Can I Stop My Policy From Being Canceled?

If financial difficulties are causing you to fall behind on your bills and you worry you may miss making your car insurance payment on time, be proactive. Reach out to your insurance company as soon as possible to let them know you're struggling to pay your bills and ask if there are any options to keep your policy in good standing. If you're upfront about it, they may be willing to work out an arrangement to help you. For example, they may postpone the due date to give you more time to pay your bill.

If you're able to meet that month's payment, it could also be helpful to talk to your insurance provider about reducing your premium payment. You might be able to accomplish this in several ways:

  • Raise your deductible. A deductible is the amount you pay before your insurance coverage kicks in if you're involved in an accident. A higher deductible means you'll pay more out of pocket for repairs, but it can reduce your premium payment.
  • Reduce your coverage. If you're not required to carry collision and comprehensive coverage, reducing your coverage to only legally required liability coverage can drastically cut down your insurance costs. Doing this will put you at greater financial risk in the event of an accident, however.
  • Cut down on your driving. The number of miles you drive annually is often a factor in your premium calculation. If you recently switched to a shorter commute or started working from home, you may want to call your insurer and provide an updated mileage estimation. Doing so may drive down your premium.
  • Improve your credit. Car insurance companies in many states factor your credit scores into your insurance premium by using what are called credit-based insurance scores. Improving your credit scores can save you money on your car insurance policy.

If you continue to miss payments, your insurance company will likely deactivate your policy, and there may be nothing you can do. But if you've received a cancellation warning and it's not yet canceled, you will often be given a date by which you must pay to keep your coverage active. If this is the case, make sure you submit your payment by that date to make sure your policy stays in place. If you don't think you can pay by then, call your insurance company to find out if there's any wiggle room.

What to Do After Your Car Insurance Is Canceled

Depending on your state's laws and your own financial situation, your options after having your insurance policy canceled can vary. Unless you live in one of two states that don't require drivers to carry car insurance (Virginia and New Hampshire), you'll need to either find a new policy if you wish to keep driving or figure out different transportation accommodations.

Applying for a new policy with your previous insurer may be an option, but it's possible they'll refuse to take you on as a policyholder. If you are approved, you're likely to be charged much higher insurance rates.

If your previous insurer won't take you back, you'll have to look for coverage elsewhere. You can try getting quotes from individual insurance companies or through an aggregator site that shows you rates from multiple insurers.

It's possible that you won't be able to get approved for a traditional insurance plan since your record shows that your last policy was canceled due to nonpayment. If this happens, you may need to look to non-standard auto insurance. This type of insurance provides similar coverage but is more expensive since it's reserved for drivers deemed higher risk. Some major auto insurance companies offer non-standard coverage, but you may also find coverage through a smaller insurer that specializes in these policies.

If you can't qualify for non-standard auto insurance either, you might have to turn to your state's assigned-risk pool. While they're expensive, these policies are for high-risk drivers who can't get coverage in the free market.

Once you have a new insurance coverage in place, make sure to contact your state's department of motor vehicles to provide your updated policy information.

Stay on Top of Your Credit

Making late payments on your bills or missing them altogether can really take a toll on your credit. It's wise to check your credit periodically so you know where it stands, and to help you see how your payment history and other financial behavior affect the health of your credit.

You can check your credit report for free on Experian anytime. Improving your credit can help you lower your auto insurance premium, but it can take time. If you're looking for an instant lift to your credit score, consider signing up for Experian Boost®ø. Experian Boost adds bills like utility and cellphone payments to your credit report so they can be factored into credit score calculations, which can help you raise your score to new heights.