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Between the rising cost of living and financial challenges brought on by the pandemic, more Canadians seem to be worrying about their finances during this economic downturn. With that in mind, what happens if you miss a home or car insurance payment? Non-payment of insurance can quickly escalate and land you in a difficult spot with your insurer. The outcome is that your insurance rates may increase or can be denied. Let’s examine the repercussions of non-sufficent funds or an NSF insurance payment, and strategies to keep them from occurring.

What is an NSF insurance payment?

There are several possible reasons you might miss an insurance payment. It can be due to a simple oversight, an issue with automatic withdrawal at your bank, or even neglecting to notify your insurer change in bank accounts. Regardless, a non-payment is taken very seriously by insurance companies. Even if you don’t mean to miss a payment, it can still impact your insurability, now and in the future.

If this does happen, you usually have to pay an NSF fee of $25–$45 at the bank, and go through the extra hassle to get the bill paid. Also, some insurance companies charge their own NSF fees on top of the ones your bank charges. While every company has a different rule in regards to a non-payment, sometimes all it takes is a couple of missed payments to result in cancellation.

FYI: In March 2020, a Leger survey about the impacts of COVID-19 found that 45% of Canadians are experiencing a decrease in income, and 22% think they will have difficulty paying their mortgage or rent.

How does an NSF insurance payment affect you and your insurance?

“The biggest consequence of a missed auto insurance premium is having your auto insurance policy cancelled,” says Anne Marie Thomas, director of consumer and industry relations at the Insurance Bureau of Canada. Failure to make a payment or receiving a cancellation can affect your auto insurance in several other ways:

  • Increase in costs: You can face a premium increase upon renewal of your policy.
  • Insurance history: A note of an NSF insurance payment will be made on your insurance history. They will appear on your Autoplus Report, which insurance providers use instead of credit reports when assessing you as a new client for insurance.
  • Additional fees: Late payment or NSF fees may be charged by the insurance company, as well as your bank.
  • Payments: There may be a requirement for you to pay your premiums upfront in three or six-month terms, or even a complete full year term.
  • Credit score: While your credit score can’t influence whether or not you obtain car insurance, a payment that you miss can possibly affect your credit. If you switch to a new insurer, outstanding payments will go into collections and impact your credit rating.

What happens when you don’t pay your car insurance in Ontario?

If there isn’t money in your account to support your automatic withdrawal or credit card payment, your insurer has an obligation to warn you of the NSF payment and let you know of the action they plan to take. They will send notice of an NSF payment and give you, the policyholder, a set number of days to make the payment:

  • 10-day notice if the letter of cancellation is given in person, or
  • 30-day notice by sending the notice by mail to your last known address
    • The notice will inform you that you have until noon of the business day before the last day of the notice period to pay the arrears, with an administration fee
  • If you miss the cut-off, they will automatically cancel your policy, effective at 12:01 a.m. on the last day of the notice period
  • If you pay the arrears and administration fee on time, then you will not have a policy cancellation
  • If there is a gap in your coverage, it may affect your driver rating and pricing.
  • You are not to drive your car, as it is illegal to drive any vehicle in Canada without car insurance
Important: Your auto insurance policy will be reinstated on a full payment basis only!

There is a processing fee for reinstating your auto insurance policy. The reinstatement fee differs among all auto insurance companies, but an average is around $50. In a worst-case scenario, you might only discover an insurance cancellation if police pull you over and it is no longer valid. In a province like Ontario, driving without insurance costs up to $10,000 for a first offence. The costs can be even greater if vehicles suffer damage, or worse, someone suffer injuries.

Consequences of an NSF payment

If you have a history of auto insurance non-payments, that may complicate matters. Firstly, if you have a history of missed payments, you may be known as a high-risk driver by all insurers. This will make getting a low premium more challenging. You can also face difficulties obtaining insurance from other companies. Secondly, a record of non-payments may stay on your insurance record for up to three years. Lastly, if you don’t pay by a specific date, an insurance company may send it to a collection agency. This can affect your credit score!

What should you do if you think you will have an NSF insurance payment?

 According to insurancehotline.com, if you think you may miss a payment on your auto insurance policy, consider taking these steps:

  1. Call your isure broker. Call in advance to explain what your challenges are and inquire about arranging payment options. Some insurance companies may forgive you for missing one payment because of the COVID-19 lockdown and its impact on your finances. However, it’s always important to be sure.
  2. Contact your financial institution. It may be worthwhile to contact your bank or credit union to ask about adding overdraft protection to your account. That will give you a bit of a buffer if a payment date precedes the date when income is deposited into your account.
  3. Set a reminder notice on your phone. We all rely on our mobile devices to keep us on top of our daily tasks. So, set payment reminders on your smartphone or email calendar to ensure you don’t miss any payment deadlines.
  4. Build an emergency fund. If it’s possible, set aside money to ensure that you won’t have any NSF insurance payments on your record.

In addition, you may want to consider:

  • Paying annually: You can pay your full annual premium up front. Most companies offer discounts for doing that and you can save up to 10%.
  • Account balance: Have a buffer in your account to ensure you have enough money for payment.
  • Shopping around: Let isure shop around for you and explore options to lower your costs.
  • Suspending or reducing your auto insurance coverage: Until things perk up and you’re in a stronger financial position, this may be a good option. Consult one of our isure representatives to discuss possible options.
Important: If you get new insurance, make sure you’ve officially cancelled your old policy. Don’t assume it’s been done for you because you don’t want that to appear as a non-payment, either.  

Typically, if you have an NSF insurance payment on your record, your car insurance policy will likely be cancelled. Your best option is to be proactive. Contact your isure broker before you miss a payment to let them know you are facing financial difficulties. Many insurers will work with their customers to provide different payment options. Let’s explore your options!

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