Over the past several decades in this business we’ve found that a segment of policyholders has grown excessively reliant on the grace periods that their insurance carriers offer by paying premiums late. Insurers have taken notice.
When a policyholder pays late, the insurer (due to state mandates) is required to send multiple notices to the policyholder and lienholders (or mortgagees). The insurers spend additional time processing paper (and potential underwriting time) to have a policy potentially reinstated. Insurers grew weary and subsequently went to work developing methods to quell this behavior. Their response to this problem has a direct impact on a policyholder’s insurability, their premiums, as well as causing issues with their lenders.
Even if you aren’t one of these people, you should be aware of this…maybe tell a friend?
Here are 5 ways your late pay habit harms you:
MODELING: For years, insurance carriers have utilized sophisticated algorithms to hone in on the most appropriate rate regarding risk. The less adverse the risk, the cheaper the rates may be. At renewal, many carriers look at your propensity for timely payments as a factor. In other words, if your payments are late at least twice in a year, you may find that your insurance rates subsequently go up even before other factors are considered. There is a cost associated with processing payments and the insurer is going to want to recoup their lost money. Your best bet is to simply pay your bills on time and in fewer payments or even consider the insurance carrier’s electronic withdrawal payment method. Some carriers offer credits for doing so.
LATE FEES: Paying late will hurt you at renewal but it will also hurt you immediately. The most obvious result of paying your bills late or allowing the policy to cancel and then seeking reinstatement is the possibility of having to pay late fees. Those fees could be between $15 and $50 depending on the carrier. If you are struggling to pay your bills on time, why make the mountain you must climb bigger?
UNDERWRITING FAVOR: Having a history of late payments on your record makes you the ugly duckling in the pond. When push comes to shove and you need a favor to reinstate your policy following a cancellation, the underwriter has all the power. Remember, the carrier is under no obligation to reinstate you so a history of failing to pay your bills on time will definitely act against you. A long history of strong bill-paying ability could literally make or break your ability to get that favor. It also helps with the modeling component at renewal.
CANCELLATION: Once cancelled for nonpayment you will have a scarlet letter on your account. Nobody even wants to be around you…except the surplus market carriers who specialize in serving such castaways. Here is the rub, if you get bounced from a standard market carrier into the surplus market you stand to pay twice the cost for half the coverage. Paying your bill on time to avoid cancellation is critical to staying clear of the surplus market.
MORTGAGE HASSLE: Most people don’t realize this, but if you go past the due date on your homeowner’s insurance, an “intent to cancel” letter is generated and your bank will definitely get a copy. Suddenly your bank will start sending you letters telling you that your coverage is cancelled. They threaten to buy new insurance coverage for you at an additional, usually far more expensive cost… unless you replace the coverage. This happens even if you ultimately get reinstated. It’s a huge hassle for everyone and if you are that person that doesn’t open mail in a timely manner, then there is a terrific chance your mortgage payment will suddenly skyrocket with the addition of a force-placed hazard insurance policy. The best way to prevent this…PAY YOUR BILL ON TIME. It is that simple.
So, what have we learned here today? Pay your bill on time. Consider paying in full, or as few installments as possible. Consider utilizing the carrier’s electronic withdrawal option. (NOT your bank’s bill pay function.) It’s that simple. Pay on time.
If after reading this, you are still saying, “I understand the concept, but I have never been good with paperwork,” you are not alone. An option you may want to consider is using a money management company to pay your bills for you to assure everything is paid on time. Daigle & Travers has a strategic partnership with personal bookkeeping company Financial Sense to help our clients save money and simplify their finances. For more information on this partnership, email Eli@dt-ins.com.