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Insurance debt. What to do if you are in arrears.

i All UK

Insurance protects you or the things you own against the risk of harm or loss. Some policies are required by law, or as part of a contract.

Insurance policies have different terms and conditions. These will explain what happens if you fall into arrears or cancel them. Such as:

  • Getting a cancellation fee for ending the contract early
  • Breaking the law by not having insurance

What happens if I fall behind with insurance payments?

If you miss payments your provider may ask you to catch up. If you do not pay your arrears they will cancel the policy. This could leave you uninsured and at risk.

If you have fallen behind, you will be sent a default notice. This may happen soon after you have missed a payment.

The default notice will give you 14 days to either:

  • Pay back the arrears
  • Pay off the rest of the agreement

If you do not do this within 14 days, your policy will be cancelled.

After this, any arrears will be be dealt with using the normal debt collection process. Extra cancellation fees could be added.

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What happens if my insurance policy is cancelled?

It depends on the type of insurance you had. Cancelling a policy could:

  • Leave you dealing with arrears while paying for a new policy
  • Mean you are breaking the law

If the insurance was a requirement of a contract, such as building cover, this could leave you in breach of the contract.

It is against the law to drive without insurance - unless you meet certain conditions.

The terms and conditions will tell you how your policy is dealt with if you cannot pay it.

Car insurance

  • You could get an early cancellation fee
  • If you pay in monthly instalments, you may have to pay the rest in full
  • 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

  • You are not required to have buildings insurance if you own a property
  • But it is strongly advised
  • It is 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 tends to be paid up-front so there might not be any cancellation fee
  • Check your terms and conditions to find out more
  • You do not have to have travel insurance, but you could end up with expensive costs if something happens to you

Life, critical illness and income protection insurance

  • You could get an early termination fee
  • Check your terms and conditions to find out more

Public liability, professional indemnity and similar insurance policies

  • If you are self-employed, or your job that requires you to have an insurance policy to practice, you may find you cannot safely or legally work
  • And you could end up with expensive legal costs if something happens to you

Dealing with insurance arrears

Take steps to deal with the arrears before it gets worse.

Before cancelling a policy, think about what impact this might have on you.

If you do not catch up with payments, the policy will be cancelled. This means that the insurer could take further action, such as:

  • Passing the debt to a collection agency
  • Taking court action

Paying your insurance costs annually

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

This can be cheaper as you will not pay any interest on top of the annual cost. If you can afford pay this way we recommend that you do.

Once you have paid an annual insurance cost, start saving for next year.

  • Look at what you just paid
  • Divide it by 12
  • The amount is what you need to save each month

By the time your next annual payment is due, you should have around the right amount saved up to cover it.

Help with insurance debt

If you are:

  • Finding it hard to deal with insurance arrears
  • Or you are worried about debts

We can help.

Our online debt advice tool can help you find the right solution for you.