car insurance cancelation laws insurance

What You Should Know About Car Insurance Cancellation Laws

In most states, you must have a minimum amount of auto insurance to drive a car. However, there are car insurance cancellation laws that could leave you without coverage.

If an auto insurance company determines that you’re too risky to cover, it may make business sense for them to set you free. Keep reading for more details on why and when your car insurance could be cancelled.

When car insurance cancellation laws may apply

Your car insurance could be cancelled during the following periods:

  • The binding period is the first 30 to 60 days that your auto insurance policy is in effect. Most states allow insurers to cancel your policy at will if they determine you’re too risky, based on underwriting guidelines.
  • After the binding period, insurers must follow strict state notification requirements to cancel your policy, so you have sufficient time to find new coverage.
  • Near your policy’s expiration date, your insurer may choose not to renew your coverage and cancel your policy.

ALSO READ: 5 Steps for Successfully Transferring Your Car Insurance

Car insurance cancellation vs. nonrenewal

“There’s a big difference between cancellation and nonrenewal,” explains Lynne McChristian of the nonprofit Insurance Information Institute (III). “For cancellation, there are all kinds of parameters that an insurance company has to follow so you’re never caught without coverage. If you don’t pay your premium, there are state parameters on how much notice you must receive.”

According to the III, car insurance cancellation laws allow your policy to be canceled if:

  • your driver’s license has been revoked or suspended.
  • you’ve committed fraud or seriously misrepresented yourself on an application.
  • you’ve failed to pay your premium.

Insurers have more latitude on a nonrenewal, which may be triggered by:

  • Excessive claims
  • Too many missed payments
  • Having a criminal record
  • Intentionally damaging your vehicle
  • Changes in your risk profile
  • Having a vehicle that doesn’t meet coverage requirements
  • Discovery of an undisclosed driver
  • Changes in products offered in your area

Car insurance cancellation protections

As with any legitimate business relationship, you also enjoy rights and protections with car insurance. For starters, no auto insurer can deny coverage based on your gender, ethnicity, religion, or because you were denied coverage by another carrier.

Insurers must give you a reason and a state-mandated warning period if they cancel or don’t renew your coverage. Once you sign on, you retain the right to change your policy or coverage limits or cancel your policy at any time. You can’t be dropped unless you violate terms that are stated in your insurance contract.

“The contract is unilateral, which means one way,” says McChristian. “You as the policyholder can cancel for any reason at any time, but it doesn’t work that way for the insurance company.”

While it is technically possible that, with required notice to state agencies, your car insurer could cancel your policy due to a new corporate focus and underwriting guidelines, McChristian says such a move would be atypical of auto insurers. “The primary reason an insurance company would cancel your policy is because of nonpayment of premiums,” she says.

What to do if your car insurance is cancelled

So, what should you do if you receive notice that your car insurance has been canceled or nonrenewed?

First, make note of your revised last day of coverage and the reason the insurer dumped you. Then call your insurance agent to learn more.

If the insurer will negotiate with you, some simple changes, such as raising the deductible or eliminating weather-related coverage, could be mutually acceptable.

If you wish to fight the cancelation, your next call should be to the insurance company’s consumer affairs division, followed by a chat with your state insurance department. For more information, the National Association of Insurance Commissioners (NAIC) website also provides valuable, state-specific information.

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