In our world of online buying and selling, we’ve grown accustomed to buying something and seeing the money come out of our account right that very second – or at least the next business day. When you switch from one insurance company to another, it can be a big cause for concern when weeks or even months pass, and no money comes out of your account.
Did my broker not get my banking information correctly? If I haven’t paid, does that mean that I’m driving around without insurance? These are legitimate questions, and it is true that in an ideal world, your full premium, or at least the first monthly installment, should come out of your account within a few days of finalizing the policy with your broker.
So why the delay?
Firstly, it’s important to point out that although you are talking to a broker about your insurance, they are not the ones selling you insurance. As the title ‘broker’ suggests, they are brokering a deal between you and the insurance company. The broker collects all the required information from you, and has authority from the insurance company to ‘bind’ the policy on their behalf. That means that the insurance policy is in force, and you are protected.
But that’s not the end of the process. After the broker binds the policy, someone at the insurance company needs to:
- Go over all your documents which were submitted by the broker;
- Confirm the broker’s determination of your eligibility for coverage and your final premium;
- Set up your billing, whether it be a one-time payment, monthly etc.; and
- Issue the policy.
That’s where delays can happen, and the fact is that many insurance companies are currently a few weeks (in some cases a few months) behind in processing policies.
Why am I getting billed three months at a time?
Because of delays in processing, it’s very possible that you could have insurance for a month, or even two, before you ever make a payment. That often means that when your first payment is processed, it will not just be for the month in question, but also for prior months. In the worst cases, you could see a withdrawal that’s equivalent to four months’ worth of premium. That really depends on the company’s billing schedule. Here are some of the more common billing schedules and how they may lead to unusual amounts coming out of your account:
- Full Annual Premium Up-Front – In this case the payment is the same regardless of when it is processed
- ‘Monthly’ payments spread evenly over fewer than 12 installments – If there is a delay in processing your policy, you may see your annual premium spread over 10 or even 9 monthly payments rather than 12. The annual cost is the same, but the individual payments are larger.
- Monthly payments with a catch-up billing – Some insurance companies will bill immediately for any prior months that are unpaid. So if there’s a 30-day delay in processing your application, your first payment could be for 2 or 3 months’ worth of premium all at once. Again, the annual cost is the same, but that first payment may be a shocker.
- Down payment added to first monthly payment – Most insurance companies want to give you some notice before making withdrawals from your account. If there’s a down payment (usually two months’ worth of premiums) and a delay doesn’t allow them to bill you right away, they may notify you that the down payment will be combined with your first monthly payment. It will look like they are taking 3 months payment all at once. What they’re really doing is giving you an extra month to come up with your down payment.
Regardless of how your payments are broken down, you are not being double-billed. You are simply catching up on prior months’ payments. If your company takes the first two months up-front, then your final monthly payment for the year is applied to next year’s policy. If you don’t end up renewing, you would get a refund.
Don’t worry, you’re insured
Delays in processing your policy can cause confusion and even some frustration when the payment that comes out is larger than expected. At Mitch, we do our best to keep you informed if we know there will be a delay, and we can issue extended temporary pink slips where required. But the key point is that you do have insurance even if the payment is not processed right away.
When you finalize the policy with your broker, they should send you temporary pink slips (proof of insurance) for exactly this reason. These temporary slips are ordinarily valid for 15 or 30 days, but given the current delays at a number of major insurance companies, your broker should be able to issue pink slips for an additional 30 days where required. We try to always stay on top of these delays and issue temporary slips well in advance of your current slips expiring. Just to be sure, if your temporary slips expire in a week and you don’t have the permanent slips, call your broker.
A big thank you to Alex Gemmiti for his contribution to this post.