Let’s say you were able to purchase your first car (finally!) and to protect your automobile, you opted to avail of insurance. Of course, this is an additional responsibility wherein time is a crucial matter.
But, humans as we are, we may miss a payment or two. The reasons for being unable to pay may include these scenarios: forgot the deadline for payment, running low on finances because of emergencies, or you can’t afford it anymore.
Whatever the reasons may be, missing a payment is a mistake you wouldn’t want to commit. Not only will you face expensive penalties, but it has other detrimental consequences.
In this guide, we’ll be talking about how you can minimize or prevent such cases and remedies if you find yourself in a pinch. Moreover, we’ll enumerate the consequences, one-by-one, for you to fully grasp the seriousness of this matter.
What Happens with a Default Payment?
Depending on the company, some would give their clients a grace period of up to five working days to settle their default payment. Default payment happens when a policyholder fails to pay a particular amount on a designated date.
During this grace period, the policy stays active—other insurance companies penalize clients who pay their insurances during the grace period. The good thing is you can utilize this grace period should you experience any fortuitous events that render you incapable of paying at the specified date.
Plus, the penalty isn’t much of a burden when you are reassured that your policy stays active. Just remember to pay within the specified grace period, and you’re good to go. Most insurance companies notify their clients of their missed payments and a grace period so that they can avoid missing out.
If your insurance company isn’t providing a grace period, this might be a more damaging situation. Let’s discuss this further in the next section.
What Happens if You Stop Payments Altogether?
It is understandable to miss a payment. However, if you stop paying for your car insurance despite having grace periods, you’re in for a troubling scenario. This will undoubtedly affect your overall financial situation.
Here are five scenarios that will occur once you stop paying for your car insurance.
1. A Cancelled Policy
Following the Insurance Code, otherwise known as Republic Act 10607, insurance companies have the legal right to cancel your policy (no matter how much premiums you’ve paid) due to non-payment of premiums.
Before an insurance policy is secured, the insurance company aids a client with his terms and conditions (such as frequency) to guarantee payment. Missed payments are a violation of car insurance’s requirements; as such, this will result in cancellation.
But, before doing so, the insurance company is obligated to issue a notice of cancellation to the delinquent client through communication channels like mail or e-mail. The law requires an insurance company to inform the policyholder of a possible reversal if the individual fails to pay his premiums after the indicated grace period.
2. An Uninsured Car
As a result of a policy’s cancellation, you’re driving an uninsured car. What does this mean? You and your vehicle are unprotected in events of accidents or an unfortunate incident.
Without a policy, you’re bound to spend a hefty sum of money for repairs, medical bills, damages, and other expenditures from your pocket. Imagine how much help it would be to have an active policy if any fortuitous event occurs.
Plus, despite having paid a considerable amount on your premiums, the insurance company won’t honor it since you’ve lapsed your policy. What’s more, for extreme cases that your car is damaged, you may not afford repair costs.
Such financial loss is detrimental to your money situation. In unfortunate cases of damages to property, injury, or death, you may go to jail, and you’re obligated to pay for the costs.
3. A Repossessed Car
Did you acquire your dream car through the aid of an auto loan? If you did, chances are, one of their requirements is for you to have an active car insurance policy. A cancelled policy is a red flag for most banking institutions and financing organizations.
When your policy is cancelled, they might repossess your vehicle. Just imagine how much of a shame it is for you to have your dream car in your possession now, only to give it away from the next.
4. A Drop on Your Credit Score
As you start to avail of financing options, your credit score gradually builds up. Your diligence in paying loans, along with your financial health, makes up your credit score. Default payments and stopping payments altogether negatively affects your credit score.
A negative credit score will make it hard for you to avail of financing aids because you may appear as a delinquent borrower. In cases of family emergencies and when you need it most, you’ll have a hard time obtaining cash.
What’s more, a negative credit score makes it critical for you to avail of financing options like housing loans, credit cards, or another auto loan.
5. An Increase on Your Insurance Premiums
Some individuals wrongly assume that skipping out on regular premium payments is a method for minimizing expenses. Little do these people know that it’s more expensive to miss on payments.
Aside from the numerous penalties, you’ll get tagged as a high-risk client by lenders, financial institutions, and banks. Being a high-risk client will automatically make your premiums more expensive than what regular payers have.
A high-risk client is someone with a past history of delinquent payments. This means that a financing institution doesn’t trust you to commit and make timely payments fully.
We hope that this guide was able to answer all of your questions regarding what will happen in cases of default payments. Your car insurance is a valuable financial cushion that you can rely on in cases of emergencies. To maintain it, regular payments must be made.
If you are in a pinch right now and need help with financial concerns, you can apply for a loan by downloading My Home Credit app on Google PlayStore.