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Retroactive Car Insurance 101

If a car insurance carrier made a top 10 list of terms they never want to see, retroactive would most definitely be on this list. Insureds (customers) usually ask insurance carriers if they allow retroactive car insurance when they have missed a payment. Most insurance carriers allow a grace period past the due date (typically 7-10 calendar days) to make a payment to avoid a lapsed insurance policy. However, a payment made during the grace period comes at a price as the late fee penalty can be upwards of $25 depending on the insurance carrier. That penalty fee is the least of your worries if a claim occurs during the lapse. 

Car insurance carriers will not back-date nor retroactively enforce a policy. Car insurance regulations and guidelines differ greatly from state to state. However, this is one of the few hard no’s within the car insurance industry. For the insurance carrier, they do not want to add risk for the past. They will assume there is a higher likelihood of risk and exposure to the retroactive dates desired. Some people even offer signing a waiver or document to confirm no pending claims or issues occurred over the retroactive dates.

There are three reasons why an insurance carrier will never even tempt the thought of establishing such a waiver. 

  1. An insurance policy is a legally binding contract. Retroactively adjusting the dates of a contract is a major adjustment. With any contact change, it usually requires both parties to agree to terms. Adjusting the dates does not benefit the insurance carrier in any aspect. Even if they were to charge a steep “retroactive” fee, the possible exposure completely outweighs any possible fee.
  2. Regardless of business decisions, states would not permit an insurance carrier to charge for dates in which they would not provide benefits even at the insured’s request. This creates a major gray area in which either side could take advantage of loopholes. 
  3. You may 100% believe absolutely no incident causing risk occurred over the desired retroactive dates. However, if there are other drivers and/or vehicles on the policy that is simply too many variables to confidently sign over all risk. And if it is a simple one driver and one vehicle policy even then you cannot 100% prove no event took place. Here are a couple of real-life examples:
    • You take your car to your local mechanic or dealership for maintenance during the retroactive days. While being serviced, the technician misaligns the lift arms and your car drops off the lift causing severe front bumper damage. Yes, the business is liable for the damages and they should have their insurance to cover such events (Garage Keepers Insurance) but you will be at their mercy. And commercial insurance claims take much longer to establish than personal auto claims. 
    • During the service, the technician finds collision-related damages to your undercarriage. This type of damage is extremely common during service as the oil you’ve been seeing on your driveway isn’t from wear and tear, it’s from the steep speed bump you went over a bit too fast at the mall last weekend.  The undercarriage is one of the most expensive areas to repair because none of the parts can be fixed. Any damaged part will need to be replaced. And if the technician suggests you should file an insurance claim, this typically means the damages will easily surpass $1,000. Then the idea of submitting an insurance claim with the date of loss being before the retroactive date or wait until after. Either option, this will be considered misrepresentation. Simply put, misrepresentation is considered fraud. If fraud is found, your insurance carrier will deny the claim, then likely cancel your policy and could pursue legal and/or criminal actions against you.