What Happens if You Don’t Pay Your Car Insurance?

Ask For an Explanation

Several car insurance companies are quick to support their own policyholder. They may tell you; they won’t look at your car until they get the other driver’s version of events. If the insurance company denies the claim and evidence shows you were not at fault, contact them and provide all the evidence such as recorded statements, police report and eyewitness accounts that support your position. If you don’t make any progress, ask the insurer to explain as to how it believes the accident occurred.

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“This means you wouldn’t see the standard information about auto insurance premium payments on credit reports the way you might see it about credit card payments,” she says. “If it’s not on the credit report, it can’t be included in the credit score calculations.” 

However, if a late or missed auto insurance payment winds up with a collection agency, that information may be reported to a credit reporting agency, which could have a negative effect on your credit score.  

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Do you still have to pay insurance if your car is totaled?

If the insurance company totals your vehicle and issues you a payout, the car no longer belongs to you and will no longer need to be insured by you. If you have negotiated an agreement with the insurance company to keep the vehicle, you no longer need to insure the vehicle if it cannot be driven. Work with your insurance agent to determine the best solution to avoid paying insurance on a car that can’t be driven but also to avoid a gap in coverage.

Does car insurance cover sales tax after a total loss?

Most states require insurers to pay sales tax after you replace your crashed vehicle.

For states that reimburse sales tax, insurance companies will provide that money on the total loss settlement for your original vehicle and not your new car. Here’s an example. Let’s say your car is totaled and you get $5,000 from your insurer. If you then buy a car that’s worth $30,000, your auto insurance company will pay the sales tax on the older vehicle.

If you’re in a state that requires insurance companies to pay for those costs, make sure to request the money quickly. Some states also have a 30-day time limit for you to request that reimbursement.

Can a Lawsuit Cover My Loan Balance If I Don’t Have Gap Insurance?

If you don’t have gap insurance to cover the difference between your total loss settlement and your loan balance, you can try to negotiate with the insurance company.

An insurance company is required to pay fair market value for your car. If you don’t agree with the settlement offer from the adjuster, you can counter with your own research. You’ll need the current sales price for cars in your area of a similar year, make, model, and trim package. You can use the Kelley Blue Book value or online listings for comparison. The more evidence you have of your car’s condition right before the accident, the more convincing your argument will be.

If negotiations aren’t going well, you should talk to an attorney. You might be able to file a “bad faith” claim against the insurance company handling your claim, ask for arbitration, or file a lawsuit.

What If Insurance Doesn’t Cover the Entire Balance of My Car Loan?

The best way to explain what happens if insurance doesn’t cover the entire balance of your loan is to look at an example. Let’s say your totaled car’s ACV is $10,000. If you still owe $12,000 on your car loan, your insurer will cut your lender a check for $10,000 and you’ll still owe $2,000. As painful as it is, you’re legally obligated to make your monthly loan payments to the lender until the loan is paid off. The fact that your car is a total loss doesn’t change your loan repayment terms. Your lender still has the right to full repayment of the loan, even though you can no longer drive your car. Gap insurance can protect you from this financial risk.

What happens if my insurance policy is cancelled?

Depending on the type of insurance you had, cancelling a policy could leave you with at risk, with arrears or in some cases you may be breaking the law.

If the insurance was a requirement of a contract, such as buildings cover, this could leave you in breach of the contract. It’s also against the law not to insure your vehicle unless you meet certain conditions, so not having insurance carries serious consequences.

Different insurance policies have terms and conditions that affect how they’re dealt with if the policy is cancelled or you can’t pay it.

What if I no longer need car insurance?

If you’re not driving, you obviously won’t need auto insurance. Perhaps you’ll be traveling out of the country, biking, or just bumming rides off friends. Keep in mind, that if you get behind the wheel again, you might pay an increased rate. That’s because insurance companies may consider you a riskier driver than those who keep active policies.

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 with a lapsed policy

If your policy lapsed, it’s important not to drive again until you are insured. If you manage to pay any outstanding balance to your insurer after only a few days, you can usually negotiate so that your coverage is reinstated.Longer lapses in coverage are more problematic. The longer you go without insurance, the more difficult it is to buy insurance in the future. Insurers may see you as a risk and refuse to insure you. If a provider does decide to insure you, you’re likely to pay significantly higher premiums due to your extended lapse in coverage. If you manage to get insured, it’s vital to pay your premiums on time and maintain a clean driving record. If you go 6 to 12 months without a claim, you may be in a position to ask your insurer about lowering your premiums.

What happens when your car insurance is canceled for missing a payment?

If you miss a car insurance payment, you’ll receive a legally required notice of cancellation from your insurer. This notice may come in the mail or by a phone call or email.

You’ll usually have 10 to 20 days between the date of the cancellation notice and the date you are no longer covered. The exact amount of time differs by state. After that, your insurance will officially lapse and you’ll no longer be able to drive your car legally. In some states, letting your insurance lapse also voids your registration — either right away or a few weeks after your insurance lapses. But no matter where you live, the longer you wait before rectifying the problem, the greater the consequences will be. So make sure you contact your insurance company immediately.

Long-term consequences of canceled insurance due to missed payments

If your car insurance lapses or is canceled, whether it’s because of nonpayment or any other reason, you will likely face financial ramifications of some kind. The consequences can continue even after you have reinstated your insurance. Here are some possible outcomes of missing your car insurance payments.

Administrative fees at the DMV: Some states will charge you for even a brief lapse in insurance coverage. For example, in New York, drivers have to pay $8 per day for up to 30 days during which their insurance was lapsed, with increased penalties thereafter. Car registration or driver’s license suspension: Nearly every state requires drivers to insure their cars in order to register them, and many states require insurance companies to notify them if you let your insurance lapse. This could result in the automatic suspension of your car’s registration or your driving privileges, leaving you unable to legally drive. You might even be required to carry an SR-22 if you are caught driving while uninsured, especially if you cause an accident. Higher auto insurance rates: Insurance companies like to see that drivers can reliably pay their bills on time every month. People who let their coverage lapse, even for a short amount of time, will likely see an increase in car insurance prices the next time they renew. Repossession of a loaned/leased car: Most car lenders require you to maintain full insurance coverage on the vehicle as long as the vehicle is financed. If your car lender finds out you are not carrying insurance on the vehicle, it may repossess the car. Your credit score can drop: If you owe money on your car insurance and your insurer passes the debt to a collection agency, it will likely impact your credit score. This can affect your ability to get a credit card or loan, and the derogatory mark will remain on your credit report for up to seven years.

How to Get Car Insurance If Youre Uninsured

You should be able to find a car insurance policy—even if you haven’t had coverage. You will pay more for coverage and some insurers may decline to cover you, but it’s possible to get car insurance if you’ve been driving without it.

Our analysis of 10 major car insurance companies found that the average cost for a driver charged with driving without car insurance is $1,851 a year. That’s nearly $300 a year more the cost for good drivers who have had continuous insurance.

Geico and USAA are two insurers to check out if you’ve been charged with driving without insurance. Both charge less than $1,400 a year on average for those drivers. USAA auto insurance is available only to those with a military affiliation.

Compare car insurance quotes from multiple companies, ask about discounts and compare quotes for the same level of coverage. By getting quotes from at least three insurance companies you can get a sense of what a good deal is.

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What to Do After Missing Your Car Insurance Payment

Now that you know what happens if you stop paying car insurance, what’s next? You can’t reverse your mistake, but you can at least minimize its negative impact. Here’s what you can do.

Talk to Your Car Insurance Provider

As soon as you receive a cancellation notice, cont

As soon as you receive a cancellation notice, contact the car insurance company to ask about what you need to do to resolve the issue or prevent a lapse in your coverage.

You may try negotiating a reinstatement with the insurer, especially if only a few days have passed since your policy cancellation. The car insurance provider might consider offering a payment option if you’re able to explain the circumstances that caused you to stop paying car insurance, like loss of income or death in the family.

Once you’ve settled your unpaid premium, the insurer could reinstate your policy. Although you might have to pay a fee for reinstatement, it’s a cheaper way to get your car insured again.

Find New Car Insurance Coverage

If reinstatement is not an option, or if you can’t afford your premium, it’s better to get a fresh start. Shop around immediately for a new car insurance policy at a lower rate.

You can easily compare quotes from different providers and find the best deals through the Moneymax car insurance comparison platform. You may even apply online for a car insurance policy with an affordable premium and the coverage you need through Moneymax.

Below is a list of top car insurance companies and their features.

Car Insurance CompanyMaximum Total Sum InsuredCasa EligibilityAccredited Repair ShopsOvernight AcommodationTowing ServicesVehicle Removal Crane Services

SGI Philippines

₱5 million5 years36Up to ₱2,000Up to ₱5,000₱10,000

Malayan Insurance

₱7.5 million3 years58Up to ₱1,000Up to ₱4,000Up to ₱8,000

Mercantile Insurance

₱5 million10 years77Up to ₱2,000Up to ₱5,000Up to ₱10,000

MAPFRE Insular

₱5 million10 years365Up to ₱3,000Up to ₱5,000Up to ₱10,000

New India Assurance

₱3.5 million10 years30Up to ₱1,500Up to ₱4,000Up to ₱10,000

Stronghold Insurance

₱3 million10 years167N/AN/AN/A

Prudential Guarantee

₱3 million10 yearsN/AUp to ₱2,000Up to ₱5,500Up to ₱15,000

Don’t Miss Your Payment Again

Now that your car insurance policy is reinstated,

Now that your car insurance policy is reinstated, make an effort to not miss any payments. If you tend to forget paying your bills, it’s best to go for an auto debit arrangement and have your premium automatically charged to your credit or debit card.

You can also use online banking apps and mobile wallets to pay your premium online. Just be sure to sufficiently fund your savings account or mobile wallet or better yet, use a separate account just for car insurance and other monthly payments.

Read more: 8 Possible Reasons Your Car Insurance Claim Got Denied

Can my other insurance policies lapse?

Yes, your other insurance policies can lapse. A lapse in home or life insurance often occurs when you stop paying the premium.

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