Many insurance companies realize the financial impact of paying for insurance and offer their clients monthly or quarterly payment schedules. Others require payment in full to start the policy. If you're on a payment schedule, be sure to make your payment on time.
Most insurers write a clause into their policies allowing them to cancel your insurance when payment is not received on time. There are no grace period requirements with auto insurance as there are with health care and life insurance premiums.
You can just imagine if your auto insurance payment is a day late and you have a bad accident what might happen. "We're sorry, sir, but we have not received payment and your policy was canceled!" This is a common problem for both car owners and insurers.
If you are canceled due to late payment, don't think that your policy will be reinstated when you make your payment. While most insurers value their customers, they won't hesitate to get rid of you if you if you have a record of late payment. To add insult to injury, if your insurance policy is canceled due to late payment, you may find yourself paying more for insurance later.
Insurance companies report late payments and cancellation due to nonpayment of premiums. So, you can run but you can't hide. If you pay slow or have a bad credit history, you're going to pay higher rates. It's a well-known fact that insurance underwriters believe people with poor credit ratings are more likely to become involved in an auto accident or file fraudulent auto insurance claims.
It seems quite discriminatory to view insurance risk based on credit history, but insurance companies get away with it for the same reasons that they charge higher rates for young people: overwhelming, historical statistics.
Bad credit will not preclude you from getting insurance, it just means you will likely have to deal with a high-risk carrier who charges higher rates. These companies insure people who are thought to be a higher risk due to their driving record, accident history, payment history. If you have a bad driving record (tickets or an arrest), recent accidents and bad credit, you may find it very challenging to get insurance. In this case, since most states require insurance to drive, you must apply for your state's "assigned risk plan" insurance.
As a young serviceman, I learned the lesson about on-time payments the hard way. I didn't setup automatic payments while I was on deployment and was chronically late. As a result, I got bumped to assigned risk for a period of 18 months or so while I proved my credit worthiness again. Trust me, it's a hard lesson.
I have been with the same insurance company now since 1977. If my insurer, USAA, was available to everyone, I would recommend them to you. To join USAA you must serve in the armed forces of the United States of America (one of many good reasons to serve!). If you are a service member, I highly recommend USAA. The savings and service are beyond compare. For everyone else, find an insurer you trust and treat them well with on-time payments.
In my next blog post, I'm going to share nine ways you can save money on your auto insurance.