The consequences of missing an insurance payment:

In today’s world of automatic payments, Electronic funds transfers and Automated Clearing House (ACH), Venmo, direct debits and other payment technologies there is less forgiveness for missing a regularly scheduled payment. Failure to remember or in the event that someone doesn’t have enough money to pay their insurance premium will result in some unintended consequences.

Although I don’t recall personally missing an insurance payment (I now pay in full each year for premium payment versus selecting installments where there is a normally a premium finance charge) – I used to pay in installments and understand the reasons why installments make sense for others.  Please note, paying in full is one of our insurance tips that will save you money.

Considering that many people pay in installments, I have done some research around this topic and here are some of my findings:

The consequences of missing an insurance payment

Policy wording varies

The policy wording and cancellation terms vary by policy, product, state, etc.   It’s important to review these differences based upon different insurance products.  What qualifies for cancellation for non payment of premium in auto insurance is different than health insurance or life insurance.  It’s important to read the policy.

For example, I found two differing definitions of non-payment of premium – one example was “Nonpayment of premium” means the failure of the named insured to discharge any obligation in connection with the payment of premiums on a policy of insurance or any installment of such premium.

Read the policy wording, the consequences of missing insurance payment for premium and be quite detrimental – especially if the policy is cancelled.


Depending upon state laws and the terms and conditions of the policy an insurer has the right to cancel coverage after a certain notice period.   This will be addressed in the terms of the insurance policy under cancellation section of the policy.  For example, an insurer may cancel an automobile insurance policy for non-payment of premium, an installment fee, late payment fee, or reinstatement fee.

After the insurance company has given the proper amount of notice of cancellation the policyholder could be uninsured for the risk.  This is the worst scenario to be in, uninsured risk is direct exposure to personal net worth.

Impact of cancellation

Use of vehicle

In the event that the cancellation is a  personal auto insurance policy then there is an issue with using the named vehicle(s) and would prevent the owner to take it on the road due to the fact it is an uninsured vehicle.

The state insurance department as well as department of motor vehicles should be notified that the vehicle is uninsured and still has its license plates therefore, the owner may receive fines and/or other suspensions, penalties etc.

The consequences of missing an insurance payment
Credit Score

Missing a payment may also have impact on the policyholders credit score and late payment history.

Lapse in coverage

Any lapse in insurance coverage is also documented and/or requested by new insurance companies in the future. Insurance companies rarely like to backdate coverage so please keep this in mind- avoid any lapse in coverage.

Claims issues

This may also present issues for policyholder with claims in the event they have to file a claim – certain policies have waiting periods and /or deductibles to prevent anyone from filing a claim within the first 30 days of coverage and or during that coverage lapse.

Ways to avoid missing a payment

Technology solutions

Failing to remember to make a payment is an issue that I hope can be avoided due to advanced technology and regularly schedule payments. Even an old school calendar reminder will work.  I think Microsoft Outlook or other electronic calendars are a great way to set reminders for upcoming or future bills.

The insurance company may also have an auto payment solution, if they don’t offer I would ask.

Financial solutions

As I said earlier, I pay for insurance in one time payment to save $ on the costs.  Insurance companies include a premium finance charge in the premium if you set up installments.  However, not everyone has the $$ on hand to pay upfront.

If a payment is missed due to failing to have enough money to insure an asset – it is an unfortunate scenario.  This situation can come from a combination of poor planning, not enough rainy day fund, or situation outside of individual control (like extended unemployment or financial crisis).


Working with a financial advisor or agent/broker to determine if payment schedule is appropriate is a good idea to consider.  In addition, as an asset owner – it is part of the ownership responsibility to carefully plan for insurance expenses. I hope that with the help of this site readers can carefully plan, project, & be prepared for future insurance costs, and that skills are developed around insurance purchasing and budgets.

Insurance costs are part of the cost of buying or protecting assets and should be a regular part of the budgeting process.

About the author

Arnold Smith

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