UNITED STATES—An insurance policy provides financial cover and protection to the insured in case of loss or damage. There are different types of insurance policies for different purposes. While some are mandatory, others are optional.

Auto insurance is compulsory for anyone who owns or drives a vehicle in most states in the US. The policy safeguards you from paying for theft, collision damages, or accidents. Instead of using your money to pay the bills, the insurance company will do it on your behalf.

Of course, you have to pay the insurer a premium on the policy. It could be a monthly or yearly payment. The premium payments ensure that the insurance policy is still active. That way, you can file a claim right away when necessary. But we know that clearing bills, loan interests, credit card payments, and premiums are a strain on the budget.

Sometimes, we don’t have enough money to make all the payments. We have to choose the most important ones and postpone the others for a while. Several auto insurance policyholders in the US have been in such situations at one time or another. It’s known as insurance debt.

Let’s read in detail about what happens when there’s an insurance debt, and you need to clear the arrears for the policy to be active again.

What Happens When You Don’t Pay Insurance Premiums?

Missing an insurance premium payment can be a big deal if you don’t act on it. Those who set up auto payments should enquire about the reason for the missing payment and correct it. If the insurance company doesn’t hear from you, it will cancel your policy and remove the coverage. You might even lose all the money you paid as premiums until that point. This, of course, depends on the policy’s T&C.

However, the key point to note is that you will no longer be insured. In states where auto insurance is mandatory, driving your car without being insured is illegal. It is a punishable offense and can further complicate matters if you get caught driving with car insurance. The penalties are the same even if you own an old and cheap car.

What is the Collection Process for Insurance Debt? 

But don’t worry. Insurance companies don’t straight away cancel the policy if you miss a premium payment. They will send you reminders to pay the amount within the due date. After that, the insurer will send you a default notice.

You get 14 days to respond to the notice and take the next step. Can you pay the arrears, or will you pay off the remaining amount as per the policy agreement? The latter applies if you have claimed the policy. Otherwise, you can ask for a settlement to close the policy.

If you ask to close the policy, the insurer will calculate the premiums, arrears, and cancellation fee to determine if they need to pay you anything or if you have to pay them some to completely close the transaction.

Remember that you still have to get another auto insurance as soon as possible to avoid being caught without insurance. Luckily, you can get the cheapest car insurance by talking to independent insurance agents and other companies. Many insurers in the market offer vehicle insurance at low-cost and affordable premium prices. That way, you will continue to be insured and save money on premiums.

How to Avoid Insurance Debt?

There are a few ways to escape incurring insurance debt and piling up arrears.

●        Choose Between Monthly and Annually

Determine if the monthly premium payment will suit your budget or if the annual payment will be more comfortable. This depends on your income and other earnings, gifts, etc., you might receive.

●        Set up Reminders

Sometimes, it’s nothing more than a busy life that leads to insurance debt. If you keep forgetting to make the premium payment on time, set up reminders on your phone. You can also activate automated payments with your bank. But be sure that there is enough money in the account.

●        Start Saving in Advance

If you decide on an annual premium, start saving from the first month so that you’ll have the final amount ready by the due date. The ultimate aim is to pay the auto insurance premium without missing the deadline or attracting more charges.

●        Get Overdraft Protection

Overdraft protection ensures that the bank will cover the overdrafts on your checking account. In most instances, the charge for overdraft protection is much less than the overdraft fee.

Final Words

It may not every time be the best idea to cancel an existing auto insurance policy midway and get another. You need to confirm that you won’t lose any money in the process. Otherwise, it is better to wait for the annual renewal time and cancel the policy.