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Insurance debt. What to do if you're in arrears.

Insurance helps protect you or your possessions against the risk of something happening to them, such as loss or damage. Some policies such as car insurance must be taken out by law. Others might also be required as part of a contract, such as buildings insurance when you take out a mortgage.

Insurance policies have different terms and conditions that explain what happens if you fall into arrears or cancel them. There could be a cancellation fee for ending the contract early, or you could even be breaking the law by not having insurance.

What happens if I fall behind with insurance?

If you fall behind with payments to an insurance contract your provider will usually ask you to catch up. If you don’t pay back your arrears the insurer will cancel the policy, leaving you uninsured and potentially at risk.

If you’ve fallen behind, you’ll normally be sent a default notice. This may happen very soon after you’ve missed a payment. The default notice will give you 14 days to either pay back the arrears or pay off the remainder of the agreement.  If you don’t do this within the time stated, your insurer will cancel your policy.

Once the policy has been cancelled any arrears will be usually be dealt with using the normal debt collection process for unsecured debts. Extra cancellation fees might be added.

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What happens if my insurance policy is cancelled?

Depending on the type of insurance you had, cancelling a policy could leave you with at risk, with arrears or in some cases you may be breaking the law.

If the insurance was a requirement of a contract, such as buildings cover, this could leave you in breach of the contract. It’s also against the law not to insure your vehicle unless you meet certain conditions, so not having insurance carries serious consequences.

Different insurance policies have terms and conditions that affect how they’re dealt with if the policy is cancelled or you can’t pay it.

Type of insurance What could happen if the policy is cancelled

Car insurance

The insurance company could charge you early cancellation fee. If you pay in monthly instalments you may have to pay the remainder of the payments.

You must have insurance if you drive or own a vehicle without a valid exception such as a SORN (Statutory Off Road Notice). Driving a vehicle without insurance is against the law.

Buildings insurance

The law requires you to have buildings insurance if you own a property. It’s also usually a condition of your mortgage to be insured.

Depending on your policy your insurer could charge an administration fee. There may be other costs, so check your terms and conditions.

Travel insurance

Travel insurance is usually paid up-front so there might not be any cancellation fee, but you should check your terms and conditions to find out more. Without travel insurance you could end up with expensive costs if something happens to you.

Life, critical illness and income protection insurance

Cancelling your policy could result in an early termination fee, but not in all cases. Check your terms and conditions to find out more.

Public liability, professional indemnity and similar insurance policies

If you’re self-employed, or your job that requires you to have an insurance policy to practice, you may find you’re unable to safely or legally work if the insurance is cancelled.

Dealing with insurance arrears

If you miss payments to your insurance or can’t afford to pay it you should take steps to deal with the arrears before the situation gets worse. Think carefully about cancelling a policy and the impact this might have on you.

If your insurance is cancelled or you don’t catch up with payments the policy will be cancelled. This means that the creditor could take further action, such as passing the debt to a collection agency or taking court action.

Paying your insurance costs annually

If you pay an annual insurance cost in one go you don’t need to worry about it until the next time it comes up for payment.  Once the annual payment is made, you’re covered for the whole year.

This is usually cheaper overall as you won’t pay any interest on top of the annual cost, so if you can afford pay this way we recommend that you do. 

Once you’ve paid an annual insurance cost, it’s best to start saving straight away for next year. Look at what you just paid and divide it by 12 to work out the amount you should save. If you do this, by the time your next annual payment comes round you should have around the right amount saved up to cover it.

Help with insurance debt

If you’re struggling to deal with insurance arrears or you’re worried about debts we can help. Our online Debt Remedy tool can help you find practical ways to manage your debts, and a debt solution to suit your situation. If you’d prefer to talk to us, call our Helpline (free from landlines and all mobiles).