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You open a letter from your auto insurance provider expecting a bill—only to learn to your surprise that your policy is being canceled. Why would the insurance company do this, and how can you get coverage going forward? Here's a closer look at why insurance carriers might cancel an auto policy and what you can do if your coverage is canceled.
Why Might a Car Insurance Policy Be Canceled?
Cancellation is different from nonrenewal. Nonrenewal means the insurance company doesn't renew your policy at the end of its term. Cancellation occurs when the insurance company cancels the policy before the term is up.
Each state has different laws, but in general, insurance companies can cancel your policy for any reason during the first 60 days you have it. After 60 days, they can typically cancel a policy only if:
- You didn't pay your premiums.
- You submitted a fraudulent insurance claim.
- You lied on your insurance application or left out key information that would have affected the carrier's decision to insure you.
- Your driver's license was revoked or suspended.
- You were diagnosed with a medical problem that may make driving dangerous, such as a seizure disorder.
Before canceling your policy, insurance companies must notify you in writing of the reason for cancellation and the date it will take place. How long you have between notification and cancellation can vary depending on state laws and the reason for the cancellation.
What to Do if Your Car Insurance Is Canceled
When you receive notice your auto insurance is being canceled, don't delay. Contact the insurance company immediately to see if you can reinstate your policy. Depending on your policy contract and state laws, you might be able to reinstate a policy that was canceled due to nonpayment. For example, the insurer may offer a grace period during which you can make up your payment and any fines, interest or fees and have your policy put back in force.
If you reinstate your policy during the grace period, you won't have a gap in coverage. If you wait longer to reinstate it, there may be a lapse in coverage (a period when you are without insurance). Having a lapse in coverage can mean higher premiums or make it harder to get car insurance in the future.
If you can't get your policy reinstated, take action: Get quotes from other insurance companies to find insurance before your policy's cancellation takes effect. Each insurance carrier has its own standards and requirements, so you may be able to find insurance elsewhere even if your policy has been canceled.
Some insurance carriers sell "non-standard" auto insurance for high-risk drivers. This can be an option if you can't get another company to insure you. An independent insurance agent or your state's department of insurance can refer you to companies that work with high-risk drivers.
No luck with non-standard policies? As a last resort, you can turn to your state's assigned risk pool. Insurance companies agree to provide insurance to drivers in these pools regardless of how risky they are. Rates will be much higher than typical car insurance premiums, but at least you'll be protected and in compliance with laws that require coverage. Contact your state insurance department to learn more about the assigned risk pool.
Should You Drive Without Auto Insurance?
The high cost of non-standard or assigned risk insurance may tempt you to drive without insurance; however, doing so can have serious consequences. If you get into an accident, you could be liable for damage to vehicles, injury to property and people, and court costs or settlements if you're sued.
Even if you don't get into an accident, most states require drivers to have a minimum level of car insurance to legally operate a vehicle. Once your insurance is canceled, the state may revoke or suspend your driver's license and car registration.
For leased or financed cars, lenders usually require collision and comprehensive coverage to protect the vehicle. Without auto insurance, the lender may repossess your car.
Lowering the Cost of Auto Insurance
Try these tips to reduce the cost of auto insurance.
- Increase your deductible. But limit it to an amount you could afford to pay in case of a claim.
- Compare rates from different insurers. You can shop for car insurance online and get quotes without affecting your credit score.
- Drive less. Ask about usage-based insurance if you drive fewer than 12,000 miles per year.
- Take a defensive driving course. Many insurers offer discounts for completing such safe driver courses.
- Improve your credit. Insurance companies in most states can use credit-based insurance scores to predict your likelihood of filing a claim. Although they differ from general credit scores, these scores are based on your credit report, and a lower score can mean you'll pay more for auto insurance. You can check your credit score for free to see where your credit stands and whether you need to improve it.
Missing a car insurance payment could not only cost you your coverage, but also affect your credit if the account is sent to collections. Prevent these risks by setting up auto-payment of your premiums.