Why It’s Important to Continue Insuring Your Car During Financial Hardship

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….

There are, however, options for people who can’t afford their car insurance. Insurance providers offer a slew of discounts ranging from safe driver to low mileage deductions. Offers will vary, which is why it is important not to settle for the first provider you come across…. One thing that’s certain is …

What to Do If You Can’t Afford Car Insurance

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. There are, however, options for people who can’t afford their car insurance. Insurance providers offer a slew of discounts ranging from safe driver to low mileage deductions. Offers will vary, which is why it is important not to settle for the first provider you come across.

One thing that’s certain is that it’s illegal to drive without insurance. If you are caught, you will face fines and penalties. You also open yourself up to major financial risk if you cause an accident while uninsured.

Consider Reducing Your Coverage

If your budget is tight, start by looking at ways to reduce your premium without sacrificing critical protections.

• Raise your deductible – This cuts your premiums substantially.
• Drop collision and comprehensive – Neither is required by law if you have an older car with low value.
• Review policy limits – State minimum liability protection is cheap but inadequate.

Before making changes, discuss options with your agent or insurer. And don’t cut corners on state-required liability coverage.

Look for Discounts

Most insurers offer a range of discounts that can help shave costs:

• Good driver
• Low mileage
• Good student
• Defensive driver training
• Affinity group
• Anti-theft devices
• Bundling home and auto

Ask your insurer what’s available. To get the best rate, you may need to switch providers.

Modify Your Car

Adding safety features can sometimes trim insurance costs. For example:

• Anti-theft devices
• Airbags
• Anti-lock brakes
• Daytime running lights
• Vehicle tracking system

The expense may not justify the savings, but it’s worth exploring.

Explore Government Programs

Depending on your situation, you may qualify for government-subsidized car insurance. Examples include:

• Medicaid – May help pay premiums if you meet income limits.
• State high-risk pools – Provide coverage if you can’t get insurance elsewhere.

Contact your state insurance department to learn about assistance programs in your area.

Talk to Your Lender

If you have an auto loan or lease, maintaining insurance is mandatory. But you may be able to modify the terms if money is tight. For example:

• Defer a payment – This gives you one month’s reprieve.
• Refinance the loan – Lower payments may free up cash for insurance.
• Voluntarily surrender the car – As a last resort, return the car to satisfy the loan.

Contact your lender immediately if you anticipate problems making payments.

Consequences of Canceling Your Auto Insurance

Canceling your insurance policy should be a last resort. Driving without coverage is illegal, and you have a lot to lose:

• Fines and fees – States impose penalties for lapsed insurance, often over $500.
• License suspension – You could lose your driving privileges.
• Higher future premiums – Gaps in insurance history will drive up rates.
• Loan default – Lenders require you to maintain insurance.
• Financial risk – You are on the hook for damage costs if you cause an accident.

Think carefully before dropping coverage altogether.

Non-Payment Cancellation

If you stop paying your premiums, your insurer will send a notice saying your policy will cancel on a specific date, usually 10 to 20 days out. Once that happens:

• Your insurer reports the lapse to the state DMV.
• The DMV sends you a notice to surrender your plates.
• You must turn in your registration and plates or face penalties.
• Reinstating your registration requires a fee and proof of new insurance.

This makes it illegal for you to drive until you secure new insurance and pay all fines. Also, a gap in coverage will drive your rates up when starting a new policy.

Voluntary Cancellation

You can request to cancel your policy at any time. Your insurer will refund any unused premium. However:

• You must return license plates and surrender your registration.
• Lenders require you to maintain insurance. Canceling may trigger a loan default.
• Gaps in insurance history will increase your rates when starting a new policy.

Voluntary cancellation may not be an option if you have an outstanding auto loan.

Alternatives to Canceling Your Policy

Before canceling altogether, consider options to reduce costs and maintain critical coverage:

Temporary Pause

With insurer approval, you may be able to temporarily suspend your policy if you meet certain conditions, such as:

• You’re not driving the vehicle for an extended period.
• You store the vehicle off-road in a secured location.
• You cancel registration and return the plates.

This puts coverage on hold while eliminating premiums. Restrictions apply, so check with your insurer.

Lay Up Coverage

Also called a storage policy, this provides stripped-down coverage — liability, fire, theft — for a stored vehicle. Premiums are reduced, sometimes substantially. Requirements may include:

• Notify the DMV you are taking the vehicle out of service.
• Cancel registration and return the plates.
• Keep the vehicle in a locked garage.
• Limit mileage to no more than 1,000 per year.

Insurers have varying rules for lay up coverage eligibility.

Usage-Based Insurance

With telematics technology, insurers base rates partly on actual mileage and driving habits. Premiums adjust monthly to match your usage. This can yield significant savings if you drive minimally.

Usage-based policies require installing a device in your vehicle to track mileage. Some insurers also monitor acceleration, braking and cornering. Concerns about data privacy deter some drivers.

The Takeaway

Canceling your insurance when money is tight may seem like the only option. But it exposes you to legal and financial risks. Explore discounts, reductions in coverage, and alternative policies before dropping insurance altogether.

With persistence and creativity, you can likely find ways to lower your premium and keep critical protections in place. But if you must suspend coverage, exercise caution and stay legal.