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Can my car insurance company drop me?

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Here's what you need to know...
  • In certain circumstances, your car insurance carrier can either cancel your coverage or choose not to renew your policy
  • There are strict laws about when a company can cancel coverage
  • If you believe you were wrongly dropped from your insurance, you can have your case investigated
Car insurance companies must collect premiums to pay claims and to ultimately profit.

While having a large book of business is critical to gain market share and to expand the company, insurance companies surprisingly do not want everyone’s money.

When an insurance carrier takes on a household and collects premiums, they are entering into a contract, promising to pay covered claims.

Unfortunately, some households are much riskier than others. In households that are occupied with risky or inexperienced drivers, the likelihood that the insurer will have to pay for a claim is high.

When the insurance company computes the numbers and finds that a household is high-risk, the underwriters have one of two options.

The underwriter can either issue a premium increase to account for increased risk or set up the policy for cancellation or non-renewal.

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You, as a consumer, may have heard horror stories from friends or family members about the time that their carrier decided to drop them. Read on to learn more about when a company can and may potentially drop you as a policyholder.

What is the difference between a non-renewal and a cancellation?

There are several different reasons that your car insurance can cancel your insurance plan.

If you stop making payments on your plan, your plan will cancel after the grading period ends. If you request the policy to be canceled in writing, the policy will be set up to end on the effective date you request.

The reasons you might be more interested in learning about are when the insurer sets up a cancellation or a non-renewal for reasons other than a missed payment or a request.

Insurer Cancellations

transportation and ownership concept - man with car documents outside

A policy cancellation ordered by the insurer occurs when the policy is terminated before the term ends.

The insurer must have a valid reason as to why they are terminating the contract. The insurer is also required to give you notice in writing before the policy cancels.

You are given a specified period to find a new policy so that you are not stuck driving without insurance.

An insurance company does not have the legal right to drop your insurance with no warning.

The reasons your policy can be canceled and the amount of time you have to find a new policy vary from state to state. You will need to check the regulations in your state to determine when a cancellation is validated and when it is not.

In almost all states, your insurer has the right to cancel your policy for virtually any reason for the first 30 or 60 days.

You must be sure that you are honest on your application so that you can avoid an unexpected termination.

Insurer Non-Renewal

student driver taking driving test

A non-renewal is an insurer action that occurs when the underwriters decide that they will not continue the policy after the term ends. When you buy insurance, it stays in force for 6 or 12 months.

Once that policy is up, the household is underwritten much like it was when the policyholder first applied for cover.

The insurer is dropping your policy when a non-renewal is ordered. Things that could cause a non-renewal include:

  •  claims
  • violation
  • suspension

Typically, you will receive a letter about 30 days before your renewal stating that the policy will not renew. The letter may give you an explanation or advise you to call the insurer.

Within this time frame, you would receive your new invoice if the insurer were continuing with the coverage.

If you would like to find out why the coverage will not renew, you have the right to speak with someone in the consumer affairs department. If you are not happy with the explanation, you can then contact the State Department of Insurance.

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Early Cancellation Recission

As previously stated, a car insurer can cancel a newly issued policy for almost any reason in the first 60 days.

This early cancellation is called a rescission, and the company will likely return all of the money you have paid towards your down payment and premiums.

Rescission cancellations are most common when an individual does not list violations or drivers on their application. It is also possible if there are fraudulent claims filed on your insurance record that can be seen by all insurance companies.

If the policy has been in force for more than 60 days, the insurer has a lot less leeway when it comes to canceling a policy.

The 60-day time frame gives the insurer time to review the risk and decide whether or not the premium justifies the risk being taken.

Cancellation After 60 Days 

when you lose your keysAfter this initial 60 days, the insurer really can only cancel for a short list of reasons. These reasons may include:

  1. Failure to pay premiums by their due date
  2. Driver or policyholder violated terms on the contract
  3. The application contained false statements that can be proven
  4. Suspension or revocation of driver’s license
  5. The vehicle is mechanically defective and deemed unsafe
  6. Vehicles are used for hire or to transport hazardous materials

Insurers cannot cancel a policy mid-term because of a claim or violation.

If someone in the household has a serious accident or a major moving violation, the insurer must wait until the policy renews to reconsider the application.

Because of these restrictions, someone’s insurance might cancel one or two years after a DUI conviction or an accident that resulted in bodily injury.

You should learn about the laws concerning cancellations in your state if you feel like the reason was not justified.

Your Rights as a Policyholder

If you feel like the decision has been made in error, contact your insurer directly. There may be a way to resolve the issue and to stop the cancellation.

If there is not resolution and you still feel like your rights have been violated, you can file an official complaint with the National Commission of Insurance Commissioners so that it is investigated.

You must maintain your coverage when you have a registered vehicle.

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