Stopping your auto pay does not cancel your insurance

Have you ever had a month where money was tighter than normal, and you did not have enough money to cover your auto insurance company’s deduction from your bank account?

Maybe you called your insurance company to stop the deduction, only to find out it was too late to stop it, because your insurance company had already notified the bank how much money to send for your insurance on your deduction date this month.

If the deduction doesn’t go through, does your insurance cancel on your deduction date? Will you be driving uninsured? Maybe you want to cancel your insurance, so you close your bank account, or tell your bank to stop the automatic deductions.

If you want to continue your insurance, the good news is a missed automatic deduction does not cancel your insurance.

But for those people wishing to cancel their insurance, it is important to know a missed deduction won’t stop your insurance. Coverage will continue, you will be billed for it, and if it is not paid, your account will be referred to collections, damaging your credit.

My blog post today will tell you what happens when an automatic deduction paying for insurance is not received, and what you should do, depending on whether you want to keep the insurance, or cancel it.

First off, even if you want to cancel your insurance, and your insurance company can’t stop your next deduction (read stopping automatic deduction plans to find out why), it is best to have the money available in your bank account on the deduction date, and allow it to be paid. If you are canceling, you will get any money back beyond what is needed to pay for insurance coverage until the cancel date, regardless if the deduction goes through or not. This is the least expensive option, because you pay no fees.

If you stop pay the deduction, your bank will charge you a fee, and your insurance company may charge a fee.

Not having enough money in your account is worse, when it comes to fees. There are usually two attempts (depending on your bank’s policy) to have the bank send your monthly premium to your auto insurance company, so you may get two NSF (non-sufficient funds) fees from your bank.

When you stop pay, or if sufficient funds are not available, your insurance company may stop your automatic payment plan, change you to direct bill, and mail you a cancel notice canceling your insurance at a future date.

Each insurance company has its own billing policy, so procedures may vary, but no insurance company will cancel you for a missed deduction, without sending you a cancel notice, and giving you the opportunity to pay before the cancel date. The one exception to this rule is if your initial payment to start an insurance policy does not clear the bank, there is no coverage provided by the insurance company.

States have laws about providing advance notice to customers if the insurance company is canceling the policy for nonpayment. Your insurance company will continue to provide coverage up to the cancel date, and you will owe the premium for the insurance coverage provided.

You may have missed one month because it was not deducted from your bank account, but the insurance company will send you a cancel notice to pay by a date in the future, before canceling your insurance coverage.

If you switched to another insurance company, you don’t want to ignore the bills & cancel notice you receive from the old insurance policy. If you do that, your old insurance will be canceled with an amount still owed, and it will be referred to collections, if it is not paid. You don’t want to pay for double coverage from both insurance companies, if the new insurance company’s coverage started, before your old insurance coverage canceled. Contact your old insurance company, and they can help you cancel your old insurance policy as of the start date of the new policy. There are a few things to know when switching insurance companies, to properly cancel your old insurance policy, and I will cover this in a future blog post.

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1. Contact your insurance company, and ask them what happens if you stop pay the deduction, or if it turns out to be NSF. Know what to expect, and what you need to do to get back on automatic deductions, if the insurance company removes you from the payment plan.

2. Wait for your bank or insurance company to contact you about the deduction not clearing your bank account. As I mentioned, banks usually make a second attempt, a day or two later, if the bank was unable to draw the money from your account the first time.

3. If you need to stop pay the deduction, but want future deductions to pay your insurance, ask your bank if next month’s deduction will be processed, or will you need to authorize deductions again in writing. Your bank may require your insurance company submit a new authorization form signed by you.

4. Make sure your insurance company has your correct mailing address, and check you bank statements.

Your insurance company may bill you for the missed month, and continue automatic deductions for the next month. Or, the insurance company may deduct an amount including the missed month & the current month’s payment next month from your bank account.  Or, the insurance company may remove you from the pay plan, and bill you for the balance owed on your policy. Don’t let a bill or deduction take you by surprise, and watch for any cancel notices.

Most states have insurance policies cancel at 1 minute past midnight on the cancel date, so if you get in an accident on January 1st, and the cancel date is January 1st, you are not covered. You want to make sure the insurance company receives payment before January 1st.

5. Although you may not be billed right away, save your money as if you were still paying for the insurance monthly, so you have enough money to pay the bill you receive.

For example, deductions for your auto insurance are $100 a month. Last month, you did not have the money in your bank account, and your insurance payment was not deducted. By the time your insurance company knows about the missed deduction, & removes you from the deduction plan, they are not able to send you a bill for this month. Next month, you receive a bill for the missed month, the month they could not bill you, and the amount due for the current month, plus a $20 NSF fee, so the amount of your bill is $320. Be ready to pay the amount due, and ignore the normal human impulse to think you had an extra $100 to spend on other things for the last 2 months.

6. Keep in touch with your insurance company to know what is going on with your billing, and when you can expect your next automatic deduction.

In the above example, it is easy to ignore your insurance, until you receive the $320 bill after a month or two, and freak out.

Know what’s going on with your insurance billing, because ignoring it can lead to an unexpected deduction from your bank account, a large surprise bill, or the unpleasant news of finding out you have been without insurance for a period of time, when you finally get in touch with your insurance company.

I have had more than one call from a customer asking when they are going to get new auto insurance id cards, or they notice their auto insurance id card has expired, only to find out their auto insurance canceled for non payment over 6 months ago.

Do you like automatic payment plans to pay your insurance? Tell me about it. Please leave a comment on my facebook page. Or, you can e-mail me at help@smartshopyourcarinsurance.com if you have questions and would like my help. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.