Most insurance carriers provide a grace period past the due date (typically 7-10 calendar days) to make a payment to avoid a lapsed insurance policy. If your insurance carrier has a website and you’ve created a username on their website to make payments, most insurance carriers will send you a reminder email when your payment is due. And if you’ve passed the due date, many insurance agents will call you advising your policy is past due and payment is required immediately. If you do still do not make payment within the grace period, your policy becomes expired and you are driving without insurance.
Your insurance carrier will then likely send you a cancellation letter advising your policy has been cancelled. If that cancellation letter prompts you to make a payment, you can still ask your carrier if your policy can be reinstated. Meaning, after you pay the past-due balance, you’ll get your original policy back without a lapse. However, this does not mean they will cover a claim if there is an incident in between the expiration date and the reinstated date.
Some carriers have absolutely no issue reinstating your policy as the reinstated fee is likely their highest fee. They see your mistake as a profit-making opportunity. However, some carriers consider an insured that cannot make payments on time as a higher risk insured. Everyone makes a mistake from time to time but a habitual reinstated policy is not the type of insured most major insurance carriers want on their book of business.
The auto insurance industry is just like any other for-profit industry. Some insurance carriers want everyone to be their customer whereas some insurance carriers have a set type of customer they cater too. The easiest example of a specialty insurance carrier is USAA. They only insure active, retired and honorably separated officers and enlisted personnel of the U.S. military. Since they created their own niche market, their rates for eligible customers are extremely competitive and they are constantly the highest ranked customer satisfaction insurance carrier by all metrics for the last ten years.
The way an insurance carrier handles a reinstated policy can also heavily change based on who you are working with. For example, the agency owner (John Doe State Insurance) makes most of their money on residual. Residual income is the amount of net income generated in excess of the minimum rate of return. Meaning, many agency owners will not want to handle the risk of constantly needing to do reinstated paperwork. The more time consuming customers on their book of business, the more likely they need to add non-sales related staff. If they somehow mishandle the paperwork, the insurance carrier they represent can give them their own penalty for mishandling a policy. They consider the reinstated fee as a penalty more than a profit making opportunity because it requires a lot of administrative work.
An independent insurance agent is more likely to want to establish a new policy more than reinstate your policy. For example, you call a particular insurance carrier’s 800-Number to make changes. Insurance agents have monthly new policy quotas and make a commission off a new policy. It is in the agents’ best interest to start a new business even though this could very well be in your worst interest. The agent can see your mistake as a new policy making opportunity. If you were to hang up on that agent and speak with a different agent, it’s very possible the second agent would reinstate your policy.