It is illegal to drive in Canada without adequate car insurance. Similarly, many homeowners' mortgages are contingent on carrying appropriate home insurance. Renters, business owners, and others face the same types of insurance mandates.
But life can be hectic and finances complicated. Most households will experience a missed insurance payment at some point during their lives.
So, how serious are missed payments? Can they cost you your coverage? Here's what every policyholder needs to know.
Grace Periods
Even in today's world of modern banking, transferring money and making payments is an imperfect process. Bank holidays, computer glitches, personal emergencies, and other incidents can and do happen. Sometimes, they conspire to make even the most diligent policyholders late in paying their premiums.
Insurance providers recognize this. They also recognize that canceling policies over a single a missed payment is often not in their best interest. As such, most insurance providers offer some form of a grace period.
Depending on the insurer, policy, and coverage type, this can range from 24 hours to 90 days. On average, grace periods tend to run around 30 days. Policyholders who get current on their premiums within 30 days of when they were due often experience no gaps in or loss of coverage.
It is essential, however, that policyholders:
- Check the terms of each policy as they differ from plan to plan
- Communicate with their insurers about their plans to get current on premiums if they miss a payment
- Miss payments only rarely
Policyholders who regularly miss payments may face penalties or problems maintaining their coverage.
Policy Lapses and Cancelations
While a single missed payment is unlikely to cost you your insurance coverage, missing a second payment can come with serious consequences. This is particularly true if you have made no effort to reach out to your insurer about the situation and your plans to get caught up.
What Happens if I Miss A Car or Home Insurance Payment?
If you miss a single payment on your car insurance or home insurance policy, your insurance company must:
- Make you aware that you missed a payment
- Give you the grace period stated in your policy terms in which to make the missed payment without consequences
- Inform you of what will happen if you do not get current before the end of the grace period
Many insurers are willing to work with policyholders who miss a payment, especially in the wake of the Coronavirus pandemic and the financial havoc it has wreaked on households nationwide.
If your insurer contacts you about missed payments, don't avoid their calls. Talk to them about your situation and your options. They may be able to provide you with more generous repayment periods and terms than is standard for your policy.
Can An Insurance Company Cancel Your Policy in Canada?
If you miss two or more payments and do not work out alternative repayment plans with your insurer, they are within their rights to cancel your plan. This can leave you without critically needed protections.
Importantly, the consequences of a missed insurance payment and subsequent cancelation can be immediate and far-reaching. For example, it is illegal to operate a motor vehicle in Canada without insurance. If your policy lapses or is canceled you must immediately stop driving and find alternative modes of transportation until new insurance is in place.
Likewise, losing insurance on your home can put you in violation of the terms of your mortgage. This can have a cascading array of legal and financial consequences.
A Special Note About Life Insurance Premiums
Depending on what type of policy you have, a missed life insurance payment may not put your coverage at immediate risk. Specifically, whole life insurance policies can offer policyholders alternative payment options.
Whole life policies accrue cash value over time. Policyholders tend to have the option to tap into this value and to spend a portion of it over the life of the policy. As such, when they miss a payment, they can use that cash value to pay their premiums.
The details of how this works, of course, depend on the policy. Some policyholders may be able to set up their plans so that premiums automatically come out of their cash value if they miss a payment. Others will have to intentionally arrange a transfer of funds or payment authorization.
In any event, this option can get or keep a whole life insurance plan up to date even when policyholders cannot pay the premiums out of pocket. This only works, however, when sufficient cash value has built up to cover the premiums. As such, this option may not be available to all policyholders.
Term Life Insurance
Term life insurance as a rule does not accumulate cash value. Therefore there are no in-policy funds for policyholders to use to pay their premiums. Thus, a missed life insurance payment on a term policy is much more likely to result in serious consequences than a missed payment on a whole life insurance policy.
Reinstating A Lapsed Policy
First and foremost, it is vital to be aware that insurers are not obligated to allow you to reinstate your insurance coverage if it lapses or is canceled due to non-payment. By law, insurers may:
- Require you to go through a reinstatement application
- Require you to purchase a new policy to obtain coverage
- Deny you coverage through their company altogether
The longer you wait to address the fact that your policy has lapsed, the less likely it is that you can get your policy reinstated. Likewise, the longer you wait the more securing coverage is likely to cost through either reinstatement or a new policy. In some cases, waiting too long can prevent you from requesting reinstatement at all.
Thus, as much as possible, policyholders should act quickly when they lose their coverage.
Since each insurer's policies can vary, policyholders should contact their insurers for information on how to request reinstatement. In the event that reinstatement is possible, they should expect:
- To face late fees, interest, and other charges
- To potentially be categorized as higher-risk than they were before
- To provide updated information during the reinstatement application process that might change their rates
Reinstatement is often not immediate. There may be delays while insurers process paperwork or standard waiting periods before the new coverage kicks in.
Reevaluating Your Options
Some households who lose coverage choose to use the situation as an opportunity to review their overall plans. They may reassess their needs and insurance budget. They may also shop around for policies with more convenient terms or rates.
If they find that their previous policy offered the best terms, they can move forward with reinstatement. They may find, however, that different policies better suit their current situations and change providers or policies.
Whichever route households choose, this in-between period is also an ideal time to look at ways to avoid missing payments and losing coverage in the future.
Preventing a Missed Insurance Payment
Even a single missed insurance payment in Canada could have real consequences for your coverage. While accidents will always happen, there are simple steps you can take to ensure that you get your payments in on time even when the unexpected pops up.
Take Advantage of Automatic Payments and Overdraft Options
One of the best ways to avoid missing payments is to set up auto-pay. This ensures that payments come directly out of your account when they are due, so you never have to remember to send them in at all.
As a backup, it can be helpful to implement over-draft protection if your bank or credit union offers it, as well. Overdraft protections allow your financial institution to pull money from a secondary account if there isn't enough in your primary account when payments are due. This guarantees that your insurance payments never get bounced due to a lack of funds in your account.
Be Intentional About Your Payment Terms
Many insurers offer a variety of payment options. If you feel that the default option makes you more likely to miss a payment, talk to your insurer about other options. For example, you may choose to pay your premiums once annually rather than on a monthly basis.
This can give you the opportunity to save up for your next payment all year, which can be ideal if you have inconsistent income. It can also give you year-long peace of mind and consistency of coverage no matter what else happens.
Periodically Review Your Coverage
Periodically reviewing your coverage can also help. It can keep you up to date on what you're paying and when it's due. It can also help you eliminate coverage and payments that no longer meet your needs.
Choosing Insurance Coverage
Selecting the right coverage can minimize the risks associated with a missed insurance payment. Insurdinary can help you find the coverage that's right for you. Explore your options and find great coverage today using our online comparison tool.
