First, lets define down payment.  An insurance down payment is simply the first payment on your insurance new insurance policy or renewal insurance policy.

In Texas, if your first insurance payment does not go through, the insurance company has the right to cancel your insurance policy flat (null or void) without a warning.  Depending on the insurance company you are dealing with, they may give you a courtesy phone call or send you a bill in the mail.  Although, they are not obligated to do this, they can simply cancel flat.

I am an insurance agent and not an attorney, but I think this has to do with Texas contract law.  If your  1st payment is not honored the  contract was never executed because the opposite party did not come through with promise to pay.  In comparison, once a policy has started and your fist payment went through, then insurance laws kick in and insurance company must send you a notice of cancellation in writing.  For example, for auto insurance, the notice of cancellation must be sent 10 days before the policy cancels.

Most of these first payment dishonored funds situations happen because  the first payment was attempted to be withdrawn via EFT (electronic funds transfer), your bank then did not honor the funds. Whether this was your fault (for not having funds), or the banks fault, it does not matter.  The insurance company can cancel your policy (if it was bank error, most insurance companies will honor a reinstatement, but replacement payment must be made).

A very common situation is when a customer has been on recurring automatic payments (EFT) for many payments and then due to an economic hardship (or common human error), there is no funds on the account on the day the policy needs to automatically renew.  Technically a renewal is a new insurance policy, so it is considered a first payment even if you have been with the insurance company for a long time, your insurance company can flat cancel the policy.  Remember, the insurance company can ONLY do this on the renewal or first payment.

I have also seen this happen when  the customer forgets he made an insurance payment then the customer disputes the transaction with the credit card company and the credit card payment is reversed.  This may also null and void the insurance policy.

Lastly I have seen this happen when policy holders write a check with no funds in the account (usually while trying to float the account to buy days before pay day)

The ways to avoid a flat cancel due to non-payment of first payment is by not making first payment via bank routing and account number and instead paying cash or with a credit card.  The simple solution is to simply deal with a good insurance company who will give you the opportunity to make up the payment within a reasonable amount of time.

This article was written by Jesus R. Olivares at Bound Insurance.  Bound Insurance is an independent insurance agency representing multiple insurance companies.  Contact Jesus R. Olivares at 512-454-7799- or by email at for any insurance questions or for a quote.