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Why Do Insurance Companies Ask For a Down Payment?

Written by Michele Wilmonen. Posted in Ask An Insurance Question Last Updated: 03/22/2013

Insurance companies are all about protecting from risk and your payment to them is no different.

Insurance companies make you pay when you get your insurance policy (down payment) to protect themselves from providing you insurance coverage for free. If they provided you insurance coverage and didn’t bill you until later, there is nothing stopping you from cancelling your insurance policy and going to another carrier without paying. And if you had a claim in that time period they would be on the hook to pay for it even though you never paid them.

Now, you can argue that they could just cancel the policy back to the effective date if you don’t make the payment. However, there are so many laws that dictate that they have to give you so many days of notice before they can cancel your policy and technically you have signed a contract with them that they will provide you coverage. With these two legal aspects, a good attorney could argue that they would be responsible for paying for the damages if you had an accident.

So for an insurance company, your down payment is an “insurance policy” (please excuse the pun) for them. Besides, if you think about it, anything you buy has to be paid for in advance before you walk out of a store and it is really no different with insurance.

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Michele Wilmonen

Michele’s first introduction to insurance was working for a major insurance company as a file clerk and a mailroom supervisor in a regional office. She learned insurance directly from underwriters and claims adjusters from questions and also watching them do their job. Since then, she’s earned a number of insurance certifications from the Insurance Institute of America and also a Bachelor’s degree from the University of Idaho. She blogs at Car Insurance Guidebook.

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