What Happens If You Owe An Insurance Company Money? Consequences and Solutions

Having an outstanding balance or owing money to your insurance company can lead to significant consequences. Failure to pay your insurance premiums not only results in a lapse or cancellation of your policy but can also negatively impact your finances and credit history. This article will explain what happens if you owe money to your auto or health insurance provider, how it affects your coverage, credit, ability to get new insurance, and tips on how to resolve insurance debt.

How Insurance Premiums and Payments Work

• Insurance policies require you to pay premiums, usually monthly or annually, to maintain coverage.

• Premiums are paid in advance – you pay ahead of the coverage period to be insured during that time.

• If you miss a payment, most companies allow a grace period before canceling.

• After the grace period, non-payment will result in a lapsed or canceled policy.

• You are still responsible for any premiums owed before the cancellation date.

Consequences of Not Paying Insurance Premiums

Lapsed or Canceled Coverage

• Failing to pay premiums will result in your policy being canceled after the grace period.

• This leads to a gap in coverage where you are uninsured.

• Cancellation remains on your insurance record and can make securing new coverage difficult.

Owe Back Premiums

• Even after cancellation, you still owe premiums accrued when the policy was active.

• The insurance company can pursue collection of these owed amounts.

• Non-payment could result in the debt being sent to collections or small claims court.

Negative Impact on Credit

• Unpaid premiums get reported to credit bureaus and show up on your credit report.

• This damages your credit score similarly to any other debt default.

• Poor credit makes it harder to qualify for new insurance policies.

• You’ll also pay higher premiums due to the credit impact.

Higher Rates in the Future

• Insurance companies access your credit when determining premiums.

• Bad credit leads to substantially higher rates, often exceeding 30% price increase.

• Cancellations for non-payment further raise prices.

• You pay these inflated premiums for years until your history improves.

License and Registration Suspension

• States can suspend your driver’s license and vehicle registration for lack of insurance.

• This results from termination of your policy for non-payment.

• To get your license and registration reinstated, you must provide proof of insurance.

• You may also have to pay fees and penalties to the DMV.

Difficulty Getting New Insurance

• Owing an insurer money and policy cancellation makes new coverage hard to obtain.

• Insurers view you as high risk and likely to default again.

• Some may reject your application due to outstanding debt.

• When approved, you’ll pay significantly higher premiums.

• Shopping around helps find companies willing to take you on.

What To Do If You Owe Money to an Insurance Company

If you have outstanding debt or recently missed payments to your insurer, take action quickly to resolve the situation and minimize the consequences.

Pay Off the Debt

• Contact the insurance company and find out the total amount owed.

• Payment plans may be available if you cannot pay in full.

• Pay off the balance ASAP, even if reinstating the policy is unlikely.

• This will stop collection activities and prevent further credit damage.

Ask About Reinstatement

• Find out from the insurer if reinstating your policy is an option after paying the debt.

• There may be a window where you can repay owed premiums and restore coverage.

• Reinstatement is quicker and easier than qualifying for new insurance.

Shop New Insurance Providers

• Research insurers willing to accept customers with past non-payment issues.

• Compare quotes to find affordable premiums despite your record.

• Be prepared to put down a larger deposit or pay premiums quarterly.

• Maintain good standing with the new company by making timely payments.

Improve Your Credit

• Continue paying all bills on time, including the insurance debt.

• Pay down debts and keep credit card balances low.

• Dispute any credit report errors dragging down your score.

• Monitor your credit and check for any changes after paying insurance debt.

Ask About Discounts

• Contact new insurers and ask what discounts could help lower your premiums.

• Multi-policy, good driver, low mileage, and anti-theft discounts can provide savings.

• Taking a defensive driving course may also offset rate increases.

• Raise your deductible for cheaper policy pricing.

Avoid Lapsing Insurance Coverage

To prevent owing insurance companies and coverage cancellation:

• Make premium payments a financial priority each month.

• Sign up for auto-pay or email reminders to avoid forgetting.

• Look for ways to lower rates if premiums become unaffordable.

• Contact your insurer immediately if you anticipate difficulty making payments.

• Be proactive and shop rates regularly, switching companies if you find a better deal.

What If I Drive Without Insurance?

Driving uninsured because you could not afford or failed to renew your policy is illegal in most states and comes with harsh penalties:

• Fines averaging $500 for a first offense, going up to $5000+.

• Possible license and registration suspension.

• Vehicle impoundment or confiscation in some states.

• Jail time in severe cases, especially for repeat offenses.

• No insurance coverage if you cause an accident, exposing you to possibly massive liability.

A lapse in insurance should be avoided at all costs, as the consequences of uninsured driving vastly outweigh the costs of maintaining continuous coverage.

Can Insurance Companies Take You to Court for Unpaid Premiums?

Yes, an insurer can take legal action if you fail to pay past-due premiums:

• They may send the debt to collections, which impacts your credit.

• If you do not work out payment, they can file a lawsuit against you.

• Common options are small claims court or civil court.

• If the insurer wins the lawsuit, the court will enter a judgment ordering you to repay the owed amount.

• Your wages may be garnished or assets seized if you still refuse to pay after the judgment.

To avoid court action, communicate with the insurance company to work out a reasonable payment plan on the past-due amount.

Tips for Dealing With Insurance Debt

• Act quickly before the situation worsens – contact your insurer when you miss a payment or cannot pay.

• Be honest about your financial situation. The company may work with you if they know you’re acting in good faith.

• Make partial payments, even if you can’t pay the full monthly premium. It shows you’re trying.

• Avoid letting multiple months lapse – this makes reinstatement unlikely.

• Pay off the balance ASAP after cancellation to stop fees accumulating.

• Comparison shop for a new policy only after resolving old debt.

• Maintain positive payment history going forward.

Can You Get New Insurance With Unpaid Debt?

Obtaining a new policy will be more challenging if you have outstanding debt or a recent cancellation:

• Insurers view customers with unpaid premiums as high risk.

• You may be declined, or new companies could charge much higher rates.

• It’s not impossible but does limit your options significantly.

• Paying off old debt or working out a payment plan helps improve the situation.

• Shopping around increases your chances – cast a wide net.

• Local insurance agents and smaller regional companies may be more flexible.

While unpaid premiums make getting new insurance harder, being persistent and exploring all options can still land you a policy. Maintaining good standing with the new company helps rebuild trust.

Summary

• Non-payment of insurance premiums leads to cancellation after the grace period.

• You still are responsible for owed premiums before the cancellation date.

• Consequences include damage to your credit and driving record, higher future rates, and potential license/registration suspension.

• Reinstatement may be possible if you pay all debt quickly. Otherwise, a new policy will be needed.

• Insurance debt should be resolved immediately to minimize repercussions.

• Drivers with outstanding balances can still find coverage, though likely at a higher cost.

• Making insurance payments a priority and comparison shopping for affordable rates reduces the risk of lapsing.

Owing an insurance company money has clear financial and legal risks. Being proactive and communicating with your provider at the first sign of payment difficulty can prevent policy cancellation. If your coverage does lapse or gets terminated, take steps right away to repay debts, rebuild credit, and find new insurance to avoid the complications of uninsured driving.