You missed a payment? Now what?

February 7, 2018 by Chad Harrison Me: Are you having an Alexander kind of day? Child: Yes. It’s terrible, horrible, awful, no good, very bad day. As a father of 3 young boys (8, 6 & 4) I have the joy of getting to read books with my boys from time to time. One day we were reading a book that I remembered from when I was a kid about a boy who was having a rough day. Have you ever had one of those days where everything goes wrong? We all do, those days can cause us to do things we don’t normally do. Like forgetting to pay bills when they are due. If you have ever wondered, “Do insurance companies cancel my policy for being late?” then you’re in luck. In this post we will explore how Insurance Companies respond to missed payments. As an independent agency we have access to multiple companies and they all handle a situation like late payments a little different. With this understanding it’s very important for you to see how your specific company handles the late payment process. For the purposes of this blog we will be providing you with some examples of what could happen in a late payment scenario. When you purchase insurance you are buying two things: 1) Time (term) 2) Coverage Every policy that is in force has an effective date marking the beginning and end of the policy along with the defined property that is being covered. In order for your policy to begin there must be an offer from the company and an acceptance from you. This acceptance comes in the form of signing the application (legal contract) and making a premium payment either in full or in the form of installments (monthly, quarterly, semi-annually). If your policy is a 6 month policy and the effective date is 01/01/2018 the end of the term would be 07/01/2018. If at any point a payment isn’t made the contract has been violated and the company is no longer obligated to hold up their end of the deal. Depending on your history as a client the insurance company may do one of a few things, let’s explore. The Missed Payment The missed monthly payment can happen a couple of different ways depending on how you have your billing setup. If you have your account setup for EFT (Electronic Funds Transfer) then the company will automatically withdraw your payment from the account you provided on a specific day. If for some reason there isn’t enough money in the account at the time of the withdrawal the insurance company will record an “insufficient funds” note on your account. When this happens the insurance company will also charge a fee. The amount of this charge is listed in the policy contract you signed when you bought your policy. This scenario is handled very differently company to company and the amounts will vary. There are other circumstances that could cause your payment to be missed, such as: 1. An expired credit card 2. Incorrect Routing Number and/or Account Number 3. Payment not received before due date or effective date 4. You forgot 5. Bank error There are probably other reasons that could be added to this list but you get the idea (I fought the urge of adding # 6- Sasquatch) Most companies will start the cancellation process immediately. To the insurance company it is very simple: No Pay = No Coverage. What About Grace Periods? I have many people that ask me about “grace periods” (again many differences company to company). In reality your idea of a grace period and the insurance company’s idea of a grace period is probably very different (remember No Pay = No Coverage). This insurance company will probably be willing to reinstate your policy if you act fast enough (varies greatly), but if you are in an accident during the period of time that you missed a payment, the company has legal rights to treat your claim as though you have no coverage. If the company is willing to re-instate your policy they will require you to sign a form that’s called “A record of no-loss”. This form is exactly what it sounds like, when you sign this you are saying that from the time of the missed payment until the time of re- instatement there have been no losses and the insurance company isn’t going to pay for any losses in that period. If you do get the company to reinstate your policy make it your top priority to stay up to date on the payments. Many of the companies that I work with have conditions that multiple missed payments will end with your policy being non-renewed. Once this happens you’ll be looking for insurance again, and this time with a lapse in coverage…which leads me to my next big point. The Dreaded “Lapse in Coverage” The highest insurance rates out there go to those individuals that are looking for a policy for the first time (no-prior insurance) or those that have a “lapse in coverage”. It is important to remember that the insurance carriers are all very risk conscience and every piece of information they get is used to determine how much your cost will be. The insurance companies employ large teams of people whose sole purpose is to determine how much the company needs to collect to insure you. So when an insurance company sees a lapse in coverage they see more risk, which equals higher costs. Make it your mission to maintain continuous coverage. Your bank account will thank you and you will avoid those missed payment terrible, horrible, awful, no good, very bad days.