I Can’t Pay My Car Insurance. Now What?

For most Americans, going carless is unthinkable. You need one to buy groceries, take kids to school, visit a doctor’s office and see friends and family from time to time. Unless you have a very good friend willing to serve as your chauffeur, living without a car doesn’t work.

A handful of cities defy the rule – New York, Washington, Chicago, Boston – because they have public transit that is plentiful and convenient. Ditching a car in those cities makes sense.

However, for everyone else, not having a car is a special kind of hell. Even folks who scrape together enough to buy one are grounded if they can’t afford the insurance bill.

Driving without auto insurance is illegal in every state but New Hampshire. There’s a reason for that: People are frequently injured in car crashes, sometimes seriously, and insurance is necessary to pay the bills and safeguard assets.

Most states require basic liability insurance to operate a vehicle. Many also call for uninsured motorists’ coverage to compensate for injuries when one of the drivers in a crash lacks insurance. Some demand personal injury protection, a form of no-fault accident insurance that covers medical costs and even time off work.

If you’re thinking about driving without insurance, don’t. You’ll lose your license and face penalties if you’re pulled over, and the consequences of an accident while driving illegally could be devastating.

Automobile insurance is an agreement between a driver and an insurer in which the driver pays an annual or monthly premium in exchange for a pledge from the insurer to cover for property damage and injury the might occur when the driver is operating a car.

Auto insurance also can cover theft and non-collision damage, depending on a policy’s terms. Rates often vary according other factors including a driver’s age, driving history, how the insured vehicle is used and where the driver lives.

But the requirement that you carry automobile insurance usually has wiggle room. If you own a car and want to drive it, discuss the options with an insurance agent or research coverage on line until you find something you can afford.

Here are a few things to consider while researching:

  • If you buy a new car, or even a used one, and need a car loan, the lender will typically demand that you have collision coverage. Collision insurance protects the car. If it is damaged and needs repairs, or is totaled and must be replaced, the lender will want its loan protected. Car loans use the vehicle as collateral, so the lender is concerned that the car is in decent shape if you default.
  • Collision coverage varies. If you have a brand-new car, you’ll probably want to protect your investment even if you bought it with your own cash. But what if you don’t have a car loan and your car is 15 years old? You should check its book value on line. If the car with only worth a few hundred dollars, carrying collision insurance probably doesn’t make sense.
  • Ask about deductibles. The deductible is what you pay out of pocket for a repair before the insurance money kicks in. If you’re able to afford a $1,000 repair on your own, then consider a $1,000 deductible instead of a $500 one. It will lower your rates, sometimes considerably.
  • Shop around and ask about safe-driver rates. Car insurance rates vary, so get several quotes before you decide on a policy. And always ask about discounts. If you haven’t had an accident or even a ticket in years, you might get a better rate. If you are a student and have good grades, that is worth a discount. In some cases, taking a safe-drivers course can also lower what you pay.

If a car is an essential where you live and you don’t have a large enough income for insurance, take a hard look at your spending. Do you have cable TV? Could you do without it? Cable bills often run well over $100 a month. Consider cutting the cable. Look at other expenses. Could you save money by turning up the air conditioner in the summer or turning down the heat in the winter? Do you eat out or buy prepared food? You could save cooking from scratch at home.

Saving money from any of those – or some combination – could be enough to meet a monthly insurance premium.

Another way to pare expenses would be to come up with a monthly budget and stick to it. If you don’t have experience making a household budget, find a nonprofit credit counseling service online. They offer free advice on how to build a budget as well as tips for managing your money so you can afford needs like car insurance.

Once you have an insurance policy, it is important not to let it lapse. Always pay the premiums on time. You might consider keeping a separate savings account for vital expenses that include insurance. Only use the account to pay essential bills, and keep it funded. If your insurance is cancelled for failure to pay, word gets around and your rates for a new policy might go up. Worse, if you’re caught driving without insurance, your license could be suspended and you’ll be fined or jailed.


Sources

NA, ND. Penalties for Making a Late Auto Insurance Payment. Retrieved from: http://www.dmv.org/insurance/penalties-for-making-a-late-auto-insurance-payment.php
NA, ND. I Can’t Afford My Auto Insurance – What Should I Do? Retrieved from: http://www.autoinsurance.org/i-cant-afford-my-auto-insurance-what-should-i-do/

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