Slipping behind on insurance payments can cost you a lot more than late fees.

Ali Shahid lost his job and fell behind on his car insurance payments. The consequences were more severe than he realized.

His insurer cancelled his policy and offered him a new one at a cost of $6,000 a year — about three times what he paid before.

“I wasn’t aware that the penalty for late payments could be permanent cancellation. This seems very harsh. I thought the worst thing that could happen was late fees,” he said.

Shahid asked me for help in persuading his insurance company to reinstate his policy. He had a new job and needed his car for work.

But that proved to be impossible.

Ontario has a bill of rights for car insurance customers. It says you can keep your existing policy in place if you pay the outstanding amount within 30 days after one or two non-sufficient fund (NSF) situations.

Shahid, however, had five payments returned by the bank in two years. That was enough for his company, Intact Insurance, to pull the plug.

“It is important that customers review and understand their insurance policy as well as their payment schedule,” said Intact spokeswoman Stephanie Sorensen. “Customers can also contact their broker for more information.”

Intact sells insurance exclusively through commission-paid brokers, who are supposed to keep customers on track with their payments.

Shahid said his broker did not warn him about possible cancellation. He learned that his policy was being cut off only when he came into money and called his broker to arrange for payment.

If he stayed with Intact, he would be classified as a high-risk customer. And while his old policy had a first-accident forgiveness clause, he would lose this protection under his new policy. (He had one at-fault accident on his record.)

The story had a happy ending. Shahid searched online for brokers specializing in high-risk customers and found a policy that cost $2,600 (about $400 more than he paid before) if he paid in full for one year.

“I was able to get the money from a client that owed me money for a project I worked on,” he said. “I was greatly relieved when I got the temporary policy number.

“I’m very lucky and happy there was a way out for me, but it was a stressful experience. It doesn’t make sense that late payment can result in tripling your rate and completely affecting your life.”

An Allstate customer had a similar problem. Her home insurance policy had been cancelled for non-payment after the first year because of a mix-up with credit cards.

“No one wants to be placed on a high-risk list. I do not want my lender to take away my mortgage. My mom and I have worked very hard to have this house,” she said.

I forwarded her email to Allstate’s complaints officer. You can find complaints officers for every insurer at the Financial Services Commission of Ontario (FSCO) website.

The customer lives in a townhouse that shares a community mailbox. She insists that Allstate’s registered letter of cancellation, as required by law, did not reach her. If that is the case, she has a good chance of having her home insurance policy reinstated (although she may pay a higher rate).

Shahid says his experience taught him a lesson: You can be late paying your credit card bill or your phone bill. But don’t fall behind on your insurance bill. The risks of late payment are too great.

Ellen’s advice

Pay annually instead of monthly. That saves you from worrying about your bank account being temporarily depleted or your credit card being replaced by one with a new number.

If you can’t afford a lump sum payment, set up a system to track your payments. Make sure each monthly amount goes to the insurance company.

Set up an overdraft protection plan at your bank. This can prevent NSFs when you are paying with monthly debits from your account.

Keep on top of things. Find out if there are any problems with your payment history. Don’t ignore a registered letter from your insurer.

Finally, remember that mistakes happen. Missing a monthly payment should not be a problem, says Insurance Bureau of Canada spokesman Steve Kee, as long as you pay the outstanding amount as soon as you realize the error and don’t let it go into a second month.

By: Ellen Roseman