Policyholders of auto insurance have more options now than ever before on making payments on their policies. Credit cards, debit cards, checks and money orders are the most common ways to pay the insurance bill. These methods require that you remember to pay your bill every month by mail, in the agent's office, by phone or over the Internet. If you are an organized person, and don't mind taking the time, then these methods are best for you.
Automatic Payments - Electronic Funds EFT
Imagine setting up your insurance bill so it is taken out of your checking account automatically every month. Insurance companies have had this option for years but few insured take advantage of this efficient method of paying the insurance bill. It is usually very simple. In addition to the regular application, a separate form must be signed and completed that identifies your bank, bank routing number and account number. Your agent might also ask for a voided blank check so the company can verify the routing and account number and whose name is on the account.
After you complete the form it is sent in to the company and they program the computer to make a request of the bank each month. This request is generally sent in a few days before the monthly payment date giving the bank time to check the insured's balance, assure enough funds and program the computer to withdraw the specified amount the day it was requested.
Most companies don't allow the customer to pick the date that the funds are withdrawn as it is based on the actual date the policy was started. There are a few that allow the customer to pick the date.
Why is it important to pay the bill on time?
Avoiding late fees is a big one. Late fees range from $5.00 to $10.00 on personal policies and even higher on commercial policies. Although most policies provide for at least a ten day grace period, it's not a good idea to get in the habit of using that extra time every month. The late fee usually applies if the payment is received on the day after the payment was due. Insureds should get in the habit of paying their premium at least four or five days prior to the date it is due if sent by mail giving enough time for the postal service to deliver the payment envelop to the company.
If you prefer paying with a credit card by phone with the agent, with the company or going online at the company's website, keep in mind that most companies wait two to three business days before they actually post the payment. Why? It usually takes about that much time for the company to verify there are enough funds in the customer's debit card account or that the limit on a credit card has not been exceeded. Although the insurance company will recognize your transaction as of the day you make it, preventing a cancellation notice from being sent out may not be avoided if you pay on the exact day the payment was due. Often the insurance company accounting system won't recognize a payment as posted until it has cleared the bank and the late notice processing system is on a different computer. So, an insured shouldn't be surprise if he gets a cancellation notice in the mail even though he paid his premium online on the day it was due. The company will then send out a reinstatement notice as soon as it is sure the funds are available.
Making payments on time also helps a consumer's insurance credit score. Insurance companies have invented in the past few years a way of determining the desirability of a customer observing several factors or behaviors. One is if the insured has a history of paying on time. Rates are set lower for those clients who have more of the desirability factors.
How does my insurance payment history affect my insurance credit score?
One time, paid-in-full, insurance payments are, of course, the most desirable of the payment plans. That means you don't have to worry about sending in your payment by mail, calling your insurance agent every month or trying to remember if you went in online and paid the bill. There are other benefits to paying your bill in-full. The company usually rewards the customer for paying in full by offering a sizable discount and the insured avoids the monthly billing fees and late fees. Theses discounts and fees can really add up to as much as several hundred dollars in savings. Of course, paying your premium in full will guarantee an improved insurance credit score.
If you need any clarification about these payment topics, please contact your independent insurance agent. We're happy to explain all the options in detail.