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Many Canadians are worried about paying their bills as the cost of living rises.

These financial challenges have left people struggling. But what happens if you miss an auto or home insurance payment because of insufficient funds? Put simply, it could put you in a difficult spot with your insurer where your rates could increase, or coverage be denied now or in the future.

What is an NSF insurance payment?

You may not have enough for your monthly insurance payment for several reasons. It could be because of an oversight, neglecting to notify your insurer of a banking change or even an issue at the bank. Whatever the reason, insurers take non-payment seriously even if you didn’t mean for it to happen. If it does, you’ll likely have to pay your bank an NSF fee of up to $45 and your insurer may charge you a similar fee on the other end. Then, there’s going through the hassle of paying the bill.

All insurance companies have different rules regarding non-payment. In some cases, only a couple of missed payments can result in your policy being cancelled. The Insurance Bureau of Canada recommends that you speak to your insurance broker so you know the exact terms and conditions of your policy regarding missed payments and/or cancellations.

How does it affect my insurance?

Here are some of the other ways missed payments can affect you:

• Increased costs – Your premiums could rise when you go to renew.
• Insurance history – An NSF note will be made on your file. That can be used by insurance companies assessing you as a new client.
• More fees– You’ll pay your bank and NSF fee and, possibly, your insurer. That’s a double whammy.
• Payment schedule– Your insurer may require you to pay upfront. That could be in 3- or 6-month terms or even a full year.
• Credit score– A missed payment may affect your credit. If you switch to a new insurer, any outstanding payments will go to collections and impact your credit rating. Note: That said, a credit score cannot influence whether you get car insurance.

What are NSF insurance requirements in Ontario?

If there isn’t enough money in your account for your automatic withdrawal or credit card payment, your insurer has an obligation to warn you of the NSF payment and let you know their plan. They will send a notice of NSF payment and provide the policyholder with a set number of days to make a payment including:

• 10-day noticeif the letter of cancellation is delivered in person, or
• 30-day noticeif by sending the notification by mail to your last known address.

The notices will tell you that you have until noon of the business day before the last day of the notice period to pay the arrears, along with an administrative fee. This differs among insurance companies but is typically $50. If you miss the date, they will automatically cancel the policy, effective at 12:01 a.m. on the last day of the notice period. However, if you pay the arrears and the fee on time, your policy will not be cancelled. Your auto insurance will only be reinstated after payment in full.

Please remember, it is illegal to drive a vehicle in Canada without car insurance. In Ontario, driving without insurance costs up to $10,000 for a first offence. That can be substantially more if vehicles are damaged, or someone is injured.

What happens if I have a history of non-payment?

You may be considered a high-risk driver by insurers. This causes your premiums to rise substantially. Also, missed payments may stay on your insurance record for up to three years. And, if you don’t pay by a specific date, the insurer could send it to a collection agency. This can affect your credit score.

What can I do if I think I may have an NSF payment?

Be proactive! Many insurers will try to work with customers facing financial difficulties and provide different payment options. Consider:

• Contacting your broker.Tell them the challenges you are facing and inquire about payment options.
• Speak with your bank.Ask about overdraft protection than can give you a bit of a buffer.
• Give yourself a reminder.Set payment reminders on your phone or calendar to ensure you don’t miss payments.
• Start an emergency fund.Put money aside so you don’t have any NSF insurance payments.
• Pay annually.You may want to pay for your insurance upfront. Then you don’t have to remember to keep money in your account every month and most insurers offer a discount for doing so.
• Suspend/reduce your coverage.Speak with your broker about your options until you’re on a stronger financial footing.

One last tip - if you get new insurance, ensure you’ve cancelled the old policy. Don’t assume it’s done because you don’t want NSF’s piling up on your record!

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