As soon as I got a driver’s license, I got a part-time job. As this was during high school, that gave me money to go out and do things without having to ask my parents. Who doesn’t love that kind of freedom? As an adult, freedom can be lost in a second if your insurance policy isn’t in effect.
It’s more important now — with COVID — to keep your insurance policies current.
In high school and beyond, my parents stressed the importance of being responsible. While I didn’t have to pay rent or anything like that, I did have to take care of my own phone bill and maintaining my car.
I was initially floored at how expensive it can be owning a vehicle. The main culprit? Insurance.
At first, I complained a little. Not that I had to pay for my own insurance — I was totally cool with that. It was just how much I was dishing out each month.
It was finally explained to me that this was because younger drivers tend to get in more accidents. They also don’t have a proven record. However, I eventually earned a lower rate because I never missed a payment and kept a clean driving record.
That was a valuable lesson for me to learn. As adults, we have to worry about health, homeowner’s, and life insurance. There are also long-term disability insurance considerations. And, if you’re a business owner, you’re probably going to have a look into property, liability, worker’s compensation, and even cybersecurity insurance.
Suffice to say, with so many insurance policies; you may get confused and overwhelmed. Moreover, it can get expensive. As such, you might be tempted to just cancel or let some of these policies lapse. But, that can be a disastrous mistake.
Why do you need insurance?
The short answer? It protects you by mitigating risk. And, in most cases, it’s required by law and lenders.
Of course, there are specific benefits to each policy that you have. So, here’s a quick rundown on why insurance is important.
If you own and drive a vehicle, then this is a legal requirement. Even if you’re driving around in a vehicle that has seen better days and has long been paid off.
More importantly, if you ever got into an accident or damaged property, this will assist you in any potential health care costs of legal expenses. It can also help with repairs, like if another driver hits your vehicle.
Being a homeowner is not for the faint of heart. That’s why you want a homeowner’s policy that will protect against theft or damage after being exposed to fire or water.
You’ll also be protected financially if someone was injured on your property. Also, because they need to know that your home is protected, mortgage lenders have made this a requirement.
There’s no need to sugarcoat this one. Doctor visits, prescription drugs, and other health-related items like dental or vision care are outrageously high. In fact, researchers have found that 66.5 percent of all bankruptcies were tied to medical issues. Although it is a financial burden for many, keeping your policy current is better than dealing with potential health-care costs that can literally bankrupt you.
If you have a family that depends on you, then this is a necessity. In the unfortunate event that you may pass, this will protect everything from your family’s home, mortgage, and lifestyle. It may even cover the cost of your children’s post-secondary education, as well as your burial.
What happens if you could no longer provide for yourself or your family because you become disable or have a critical illness? With a disability policy, you can still maintain your lifestyle while also having the peace of mind to handle your mortgage expenses.
If you run your own business, then you should consider the following types of business:
- Property. Covers everything from equipment to property damage both inside and out.
- Professional liability. Keeps you protected if someone tries to sue your business.
- General liability. Let’s say a customer gets insured in your property; this will protect you. It also offers protection from libel, slander, and copyright infringement.
- Cybersecurity. Having this type of insurance keeps you safe from the financial costs associated with cyber threats.
- Worker’s compensation. As long as you have employees, you’ll need workers’ compensation to protect them and your business. In some states, this is required.
Overall, insurance plays a big part in your everyday life — whether you realize that or not. And while each policy is unique, the short of it is that keeping your insurance policies current will safeguard you financially and protect your assets.
Moreover, it will help you effectively manage risks from uncertainty and encourages savings. After all, you need to budget to keep up with your premiums. And, ultimately, insurance gives you peace of mind — which will greatly reduce stress.
Why might insurance lapse?
Despite the advantages that having a current insurance policy provides, there are times when it might be canceled. Also known as a lapse, this means that your policy is no longer active. As a consequence, this means that you no longer have coverage.
Why does this happen? I don’t think it’s for nefarious reasons. A lot of times, it’s because money is tight and you have to make sacrifices. For example, if you had to choose between your mortgage and utilities over a life insurance policy, I think most of us would opt out of that insurance.
In addition to canceling or just not paying the premium, you may also lose an insurance policy for the following reasons:
- Your risk has changed. If you got into a car accident or received speeding tickets, don’t be surprised if your auto insurance creeps up. The same is true with homeowners if you recently experienced a natural disaster or got a dog like a pitbull.
- There are too many claims. Sure, this isn’t always fair. But, if you have multiple claims in too short of a period, you may get dropped by your insurance company.
- You’ve committed fraud. An example would be lying on your application, like not admitting that you have a pitbull (which is a misunderstood breed.) Another would be material misrepresentation or concealment in regards to life insurance. For instance, you’re a smoker but don’t own up to this unhealthy habit when applying.
- You didn’t meet certain conditions. Let’s say that your homeowner’s insurance provider requires you to repair your roof or remove fire hazards. If you don’t follow through, usually within 30 days, your policy may no longer be active.
Just note that most policies can not get canceled if you get sick, move, or get other insurance — this is most useful in regards to life insurance.
What happens when an insurance policy lapses?
Again, this means you no longer have coverage. So, if you get in a car accident or a branch falls on your roof, you’re screwed — sorry, that’s just the ugly truth. However, your insurance provider may grant you a grace period.
For example, if you missed your auto insurance payment by a couple of days, and you act fast, your coverage should be reinstated without a lapse in coverage or other serious consequences. In most states, a life insurance policy is required to first go through a 30-day grace period.
But, what if you aren’t proactive? Expect to get slapped with the following:
- Fees. Take your auto insurance as an example. You’ll have to deal with DMV administrative fees. In New York, this is $8 per day for up to 30 days.
- Higher premiums. Regardless of the policy, it’s going to more difficult to find a new policy at an affordable rate. It’s not uncommon for insurance companies to refuse applicants if you have too many previous claims.
- Legal consequences. Again, you are required to have auto insurance. However, if you let you no longer have general liability insurance at your business, you will be responsible for covering the medical expenses if someone injured themselves on your property.
- Repossession. Because lenders require insurance, they may repo your vehicle.
- Your credit score can drop. Like any other debt, if you own money to an insurance company, they will pass this along to a debt collection agency. And that can severely impact your credit score.
How to avoid a lapse in coverage?
Whether if it’s required or not, you need to keep your insurance policies current. The easiest way to do this is to sign-up for automatic bill-pay. However, if you’re having financial difficulty, don’t be afraid to reach out to your insurance company to see if an arrangement can be made — they may have discounts that you weren’t aware of.
Additionally, I strongly recommend that you review your policies at least once a year. Maybe there’s an increase in your policy. Talk to your provider and find out why. If the premium keeps rising, you may want to shop around for a more affordable option. You should also do this when you’ve experienced the following changes:
- Marital status
- New employment
- Home purchase
- Naming new of benefices
- New loan
- Improving your health
When you do, you can avoid lapses and may even snag a lower insurance rate. And, make sure that you drive safely and keep up with maintenance and repairs.