Are auto insurance companies allowed to charge a policy fee?

The Lowdown on your potential auto policy fee. Here’s a policy fee breakdown.

• Car insurance companies can charge a policy fee when your policy begins
• Not all auto insurance companies charge policy fees, and the insurer can waive fees in some cases
• Policy fees aren’t the only surprise charge that could appear on a car insurance policy

If you recently purchased a new auto insurance policy or are considering other companies, it’s vital to research all additional hidden fees associated with your policy.

Some insurance companies do not charge any hidden fees. However, other companies and independent agents often make extra money by charging new customers additional costs for various reasons. 

Since auto insurance companies can charge a policy fee, potential customers should learn about the different charges they could see on their auto insurance policy and how to avoid paying them.

Be sure to compare insurance providers online using our free quote comparison tool so that you can find the cheapest auto insurance with the best coverage!

Can auto insurance companies charge a policy fee?

A policy fee is a charge some insurance companies issue to new and renewing policyholders. 

Not all auto insurance companies charge policy fees, but the companies that do often say these fees serve administrative purposes.

States have different laws regarding policy fees, but most allow policy fees on insurance products if the fees are reasonable and mentioned in the contract.

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How much does a policy fee cost?

Most policy fees are reasonable. For example, the average policy fee for a new auto insurance policy is between $10 and $35. If your insurance company charges policy fees when you renew, this amount could be even lower.

How would I know if a company charges a policy fee?

Companies that charge policy fees don’t necessarily advertise this information. There are a few ways to determine if a company charges a policy fee.

First, you can ask about a policy fee when speaking to an agent. If you reach out to get a quote from a specific company, ask outright if you will have to pay a policy fee. You can also request a quote with no add-ons for processing.

If a representative says the company charges a policy fee, you can tell them you refuse to pay it. In some cases, a company may issue your policy without the policy fee to keep you as a customer.  

If the company insists on charging a policy fee, ask the agent to send you the cost, so the company doesn’t try to charge you more later.

Lastly, ask if the policy fee is a one-time charge or if you get charged each policy renewal. If there is a policy fee per renewal, ask the agent to write down the exact cost.

Should I always avoid a policy fee?

If possible, you should purchase auto insurance without a policy fee, so you don’t have to pay more to initiate or renew your policy.

However, if you’ve found a great insurance company with the coverage you want and monthly rates that work well with your budget, you shouldn’t count it out because of a policy fee. 

Additionally, these fees often cost less than $40. If you can afford to pay the policy fee and reap your policy benefits, you should consider the policy. 

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Do insurance companies charge other hidden fees?

Along with policy fees, insurance companies often charge other fees throughout the life of a car insurance policy. Some of the most common fees insurance companies charge include:

• Broker or agency fees
• Installment fees
• Late fees
• Bonus fees

Insurance companies can charge a variety of fees, and the amount and nature of these fees often confuse policyholders.

Broker or Agency Fees

Insurance brokers or agents often get paid via broker fees. For example, some agents charge broker fees on top of the commission they receive from selling you an insurance policy. 

A broker fee could be a reasonable price, but if you notice your insurance cost is higher than expected, a broker or agency fee could be the culprit. You can ask an agent whether they intend to charge a broker fee — if their answer is yes, ask for the exact amount.

Installment Fees

Insurance companies like its customers to pay policies in full, so some offer discounts to customers who pay their policies for six months or a year. Other insurance companies charge installment fees when customers pay monthly. 

Expect to pay higher installment fees — ranging from $2 to $20 — if you receive your auto insurance bills in the mail.

Late Fees

Some insurance companies offer a grace period of a few days, but others charge a late fee immediately.

Set up automatic payments with your insurance company to avoid late fees. An automatic draft for car insurance payments ensures you make monthly or annual payments on time and avoids late fees.

Other Fees

Some companies charge other fees as a last resort for policyholders whose policies are close to cancellation. If you miss payments for a month or more, your insurance company may cancel your coverage.

However, certain insurance companies allow policyholders to continue receiving coverage if they catch up with any missed payments and pay an additional fee for not abiding by the contract. 

Case Studies: Auto Insurance Companies and Policy Fees

Case Study 1: The State Regulatory Approval

An auto insurance company wanted to add a policy fee to cover administrative costs. They needed approval from the state insurance regulatory authority, so they submitted a proposal explaining the fee’s importance. The authority reviewed and approved the fee, recognizing its fairness and validity based on the company’s justification.

Case Study 2: Class-Action Lawsuit

An auto insurance company faced a class-action lawsuit for charging an undisclosed policy fee. Policyholders claimed it was unfair and violated regulations. The court sided with the plaintiffs, ordering the company to reimburse fees and stop charging without proper disclosure.

Case Study 3: Legislative Restrictions

Some jurisdictions passed laws prohibiting auto insurance companies from charging policy fees. In one state, a specific law banned any policy fees for insurance companies operating there. As a result, insurers had to adjust their pricing models and include administrative costs in the overall premium.

Case Study 4: Competitive Practices

In a competitive insurance market, an auto insurance company stood out by not charging policy fees, positioning itself as customer-friendly. The company aimed to differentiate and gain a competitive edge, which led to increased market share. This strategy resonated well with consumers and received positive attention.

Auto Insurance Policy Fees: The Bottom Line

Hidden fees can be a hassle. Unfortunately, many car insurance companies regularly charge policy fees and other fees. To avoid paying policy fees, address the subject with a representative.

Ask whether your initial payment includes an auto policy fee. If the agent says yes, get the specific amount you will have to pay. 

You can always shop for car insurance if you want to find a company that doesn’t trick you into paying hidden fees but don’t let go of an excellent policy because you have to pay a small, one-time fee.

Insurance companies charge fees for premium installments and late payments too. So before you sign up for coverage, know what you’ll be responsible for if you miss a payment or choose to pay monthly rather than annually.

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