Automatic payment plans to pay auto (or boat, renters, motorcycle, etc.) insurance, such as EFT (electronic funds transfer) from a bank account, or payroll deductions, can be convenient for customers, and help them save money. But automatic payment plans can be tricky, when stopping the plans, because you have changed banks or employers, or you wish to cancel the insurance policy. Unexpected deductions from paychecks or bank accounts is a common complaint among insurance company customers, and can be avoided, once you know how these plans work, and the proper way to stop them.

I have blogged before about how automatic deductions plans paying for auto insurance can be a nightmare for some customers, and this blog post is part of my series of blog posts, showing people how to avoid hassles when canceling insurance policies.

Stopping automatic deductions paying for your insurance, is part of knowing how to cancel insurance without difficulty or unexpected bills, but the information in this blog post will also assist anyone stopping or changing an automatic payment plan to a new bank, or different payment option.

Here are the steps to follow to avoid problems stopping an automatic payment plan:

1. As soon as you know you want to stop your automatic payment plan, or cancel your insurance policy on such a plan, call your agent.

If you don’t have a local agent, call your insurance company directly. Whether you speak to an agent or the company, make note of the date, time, name of the person to whom you spoke, and what was said. Do this any time you speak to your agent or insurance company.

2. Tell your agent or company you are switching your plan or canceling your insurance, and ask them if they can stop the next deduction from your bank account or paycheck.

Even if your insurance company requires you to give them a signed cancel request in writing before they will cancel your insurance, or require a new form to authorize deductions from a new bank, they still can stop your automatic payment plan, and change your policy to direct billing, while the insurance company waits to receive your written cancel request.

(If you are simply changing banks, it is best to not stop your deduction plan, but leave your old account open, with enough money to pay for your insurance, while you wait for the insurance company to change your plan to the new bank. Keep in touch with your insurance company, and wait for written confirmation to let you know when it is okay to close your old account.)

However, insurance companies need advance notice to stop deductions from bank accounts. You can’t call on the 3rd or 4th of the month to stop a deduction on the 5th of the month. Some insurance company automatic payment plans need  almost 2 weeks notice before the deduction date, but this can vary from company to company.

It works like this: say your auto insurance premium is deducted on the 25th of every month from your checking account. The insurance company will notify your bank electronically, on the 15th, for all the insurance company ‘s customers having a deduction on the 25th, using the same bank as you, telling the bank how much to pay the insurance company for each insurance policy on the 25th.

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In the above example, when you call on the 16th to stop your automatic deduction plan, your agent will tell you there will be a deduction on the 25th, but future deductions will be stopped.

3. DON’T tell your bank to stop pay the deduction, or close the account, or allow it to go NSF (non-sufficient funds).

If you ask your bank to stop pay, your bank will charge you a fee. Also, your insurance company may charge you a fee.

If you close your account, your insurance company may charge you a fee.

If the deduction does not clear because of insufficient funds, your bank charges you a fee, the insurance company may charge a fee, the deduction is often automatically attempted again, and you once again occur fees if it is not paid.

The best thing to do is to leave the account open, and have enough money in the account to cover the deduction, and to not stop pay it. If you are canceling your policy, any possible refund will be based on what was paid. So don’t worry, you will get all the money back paid into the policy, paying for coverage beyond the cancel date.

4. Call your agent or insurance company again if you do not receive mailed (or electronic) notification of your automatic payment plan being stopped in 10 business days from your original request to stop it.

Assume deductions will continue until you receive written notification your plan has been stopped, or it has been changed over to your new account.

Don’t make the mistake of never shopping for better rates with other companies. Some insurance companies charge a lot more than other companies for the same coverage, but no company has low rates for everyone. You have to shop with all the leading companies, to find the company with the best coverage and best price for you.

Have you had problems with an automatic payment plan? Is it a good way to pay for insurance? Tell me about it. Comment on my facebook page. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch. See my auto & home insurance company reviews for over 40 different companies, rating each company’s pricing, claims & customer service at smartshopyourcarinsurance.com.