Pedestrians pass by a parking lot in Toronto’s Danforth neighbourhood in 2024. Canadians with a history of cancellations for non-payments can face higher insurance premiums.Sammy Kogan/The Globe and Mail
Making insurance payments has increasingly become a challenge for many Canadians, as the cost of living has soared in recent years – along with the cost of insurance.
Both home insurance and auto insurance premiums across Canada have been grinding higher since the pandemic. The factors are numerous: a rising frequency of weather-related damage, forest fires, more car accidents because of distracted driving, and the increasing complexity of vehicles owing to technology such as cameras and sensors.
The rising costs are putting pressure on Canadian pocketbooks. But what most don’t know is that the consequences of a missed payment or cancelled insurance policy can be serious, and the effects more lasting than many realize. Missing a single payment does not immediately void your coverage. Most insurers build a short grace period into their policies, typically somewhere between 10 and 30 days, depending on the insurer and the province. During that window, your coverage generally remains in force, though you may be charged a late fee or non-sufficient funds charge.
Once that grace period expires and the outstanding balance is not paid, however, the insurer is entitled to cancel your policy for non-payment. In most provinces, they are required to give you written notice of the pending cancellation (often 15 to 30 days’ advance warning), offering you a final opportunity to make the account current.
It is worth taking that notice seriously, because the moment a policy cancels for non-payment, it goes on your record and obtaining insurance becomes more difficult and more expensive.
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Insurers routinely ask, when you apply for new coverage, whether you have ever had a policy cancelled involuntarily – and cancellation for non-payment (CNP) counts. Depending on the insurer and the line of insurance, it can trigger higher premiums, the requirement to pay your entire annual premium upfront rather than in monthly installments, or outright refusal of coverage by standard market insurers.
“Some insurers have underwriting rules to decline customers who have had prior CNPs, which could make it difficult for these customers to secure affordable insurance coverage going forward,” says Qui Trieu, Aviva Canada’s vice-president of national underwriting and fraud. “In some cases, a customer may have to seek a policy with a sub-standard insurer … Coverage from these insurers typically comes at a significantly higher cost.”
So just how much can a CNP potentially cost you? Let’s look at a car insurance example. A 39-year-old male living in Toronto driving a 2021 Mazda3 GS with a clean driving history pays $2,076 annually for insurance. However, add a CNP to their record and that premium rises to $2,424 – a nearly 17-per-cent increase. If you have two CNPs on your record in three years, your lowest quote jumps to $3,206, and the insurer will want it paid upfront in full.
It’s important to understand that insurers would generally rather keep you as a customer than cancel your policy.
“If you are struggling with your monthly auto insurance premium, we suggest you reach out to your adviser as soon as possible,” said Brian Vanboxmeer, director of distribution partnerships at RBC Insurance. He says your insurer can potentially offer options that could avoid a missed payment or cancellation, such as changing the monthly withdrawal date or making changes to lower your premium.
These options are far more likely to be available if you initiate the conversation early, before the account is in arrears and the cancellation process has begun.
“Some potential ways to reduce premiums include enrolling in telematics programs, bundling home and auto policies, or increasing deductibles,” Mr. Trieu said.
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One option that many policyholders do not know exists is the ability to reduce or suspend coverage rather than cancel your policy entirely. This is an option as long as you don’t drive your car for an extended period of time, and it reduces your premium to a much lower amount than you’d pay for full coverage.
“While each insurer will have different rules on gaps in coverage, parking and suspending coverage for a reasonable amount of time would generally not result in a rateable gap,” Mr. Trieu says (more on rateable gaps in just a moment). “Drivers would still need comprehensive coverage, which would cover issues like theft or fire.”
Maintaining any active policy – even a basic one – avoids the coverage gap that triggers so many of the downstream problems described above. If you do end up with a period of no insurance, you will encounter the term that Mr. Trieu mentions: a rateable gap.
A rateable gap is any period during which you were uninsured and should have had coverage. Insurers treat these gaps as a risk signal. The reasoning is straightforward: Someone who has been continuously insured for years is, statistically, a lower-risk customer than someone who has had unexplained gaps in their coverage history. The longer the gap, and the more recent it is, the more it can affect what you pay.
For auto insurance, a rateable gap can cost you the continuous-insurance discount that many insurers offer, which can be worth 10 to 15 per cent of your premium. For home insurance, it can affect your eligibility with insurers entirely. Some insurers require you to demonstrate a certain number of consecutive years of coverage before they offer you their best rates.
Even a gap of a few months – the kind that can result from letting a policy slip during a difficult financial stretch – can create a rateability problem that persists for years.
If your premiums are becoming unmanageable, the answer is never to simply stop paying. Reach out to your insurer and do what you can to avoid a cancellation or gap.
John Shmuel is the Content Director at Surex, an insurance brokerage based in Magrath, Alta. He is also a writer and financial commentator focusing on insurance.
Editor’s note: This article has been updated to state that a cancellation for non-payment (CNP) could increase the insurance premium for a 39-year-old male living in Toronto driving a 2021 Mazda3 GS with a clean driving history to $2,424 a year.
