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Does Repossession Affect Car Insurance?

The effect of repossession on car insurance

While having your car repossessed doesn’t directly affect your insurance company, it will have a major effect on your credit score. Because of the fact many auto insurance companies use an applicant’s credit score as an underwriting tool, the major decrease in your credit score because of the repossession will lead to higher insurance rates. Here you will learn how Repossession Affects Car Insurance.

Insurance Rates and Your Credit Score

What does your credit score have to do with the cost of auto insurance? When this policy first entered the market some years ago, I questioned my insurance agent—we were with Nationwide at the time and had been for many years. Apparently, according to the agent, insurance companies had conducted surveys and concluded people with bad credit submitted more claims and were involved in more at fault accidents than those with good credit. While it probably doesn’t make sense to those who are seeking the best rates for auto insurance, we have to accept it.

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The Effect of Repossession on Car Insurance

So does repossession affect car insurance? Having your car repossessed probably creates many questions beginning with your auto insurance. The first thing you may want to know is whether your coverage is still active and whether it is necessary to maintain your policy. Another question that may come to mind is how the repossession will affect future auto insurance rates. However, the most important question is how the repossession will affect the future cost of auto insurance.

Since auto repossession is a financial issue and not an insurance issue, it’s natural to think it will not have an effect on current rates or make it difficult to secure auto insurance at the lowest rate in the future. According to Schwab Agency on August 29, 2019, this is just not correct. The fact that repossession has a devasting effect on your credit score combined with the fact many auto insurance companies rely on a customer’s credit score to set rates means having a bad credit score will ultimately mean you will need to pay higher premiums.

 

CompaniesAverage % Increase in SC After Lapse in Auto Insurance CoverageAverage % Increase in CA After Lapse in Auto Insurance CoverageAverage % Increase in FL After Lapse in Auto Insurance Coverage
GEICO3.35%7.77%124.85%
Progressive68.79%2.15%61.32%
Liberty MutualN/A16.38%N/A
FarmersN/A11.90%6.89%
NationwideNo quote offered13.10%N/A

*Information Provided by AutoInsurance.org

More graphs of insurance rates for those with poor credit.

Credit score & auto insurance

Source: Insurify.com

Conclusion

Do not make the mistake of thinking having your car repossessed will not affect your insurance premiums in the future. While this would be a logical line of thinking, the reality is insurance companies use your FICO score to underwrite your auto policy. Since a repossession has a substantial negative effect on your credit score, you can expect to pay higher premiums when you obtain another vehicle.

Another factor to keep in mind is your rates are affected negatively if you go longer than 30 days without insurance coverage. It doesn’t matter if you don’t have a vehicle to insure—it will still affect you when it comes time to insurance another vehicle. Therefore, the best bet is to avoid repossession at all costs.

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