Why Did I Get a Car Insurance Cancellation Letter?
Auto insurance coverage is not a luxury—it is a necessity. With a few notable exceptions, it is a legal requirement for drivers in the United States. If you have recently been caught driving without it, you know that the penalties can cause a real headache and take a big bite out of your pocketbook.
But let’s say that you’re a responsible driver and have a car insurance policy. You know that the risks of not having it outweigh the benefits, and you have accepted your fate. But as much as you don’t like paying up, getting a letter from your insurer informing you that it is canceling your policy can be a bit disconcerting.
Before it causes a real panic, though, it's a good idea to understand just what cancellation means and how to deal with it. Here's what to do after receiving an insurance cancellation letter.
Why Your Policy Is Being Canceled
Believe it or not, it's actually pretty unusual for an insurer to cancel one of its policies. In most jurisdictions, an insurer can cancel a policy for almost any reason during the first 30 or 60 days it is in effect. During that initial period, an insurer may cancel a policy if it discovers information about the insured either not disclosed or misrepresented by them during the application process.
After the initial period, cancellation of a policy by a carrier becomes, by law, much more difficult. The carrier will have to have a good reason to cancel a policy. By far the biggest reason for cancellation is the failure to pay your premium (for obvious reasons). Your policy could also be canceled if you have defrauded the company— if you conceal any information for financial gain it is considered fraud. If your license is canceled, suspended, or revoked, or any of the drivers on your policy have this happen to them, your insurance company can cancel your policy, too.
Likewise for a significant number of accidents and moving violations. Finally, if you are diagnosed with a condition that makes driving unsafe, such as epilepsy, your insurer can cancel coverage.
Cancellation vs. Non-Renewal
Cancellation happens during the policy period. Non-renewal is what happens at the end of one policy period and before a new policy period begins. There are many reasons why an insurer decides not to renew an insured's policy, including a change in the insured's driving record, such as a DUI or accumulation of moving violations; multiple claims against the policy; or the insured moving to a state where the insurer does not write policies.
Your insurer is required to inform you of its intention not to renew your policy a designated number of days (specified by law) before your current policy is up in order to give you time to seek out car insurance coverage elsewhere.
What to Do if You Receive a Cancellation Warning
If you receive an auto insurance cancellation letter, chances are that you had a pretty good idea it was coming. That's because insurance companies take cancellations pretty seriously and they will likely provide you with one or more warnings before actually canceling your policy.
For example, if you are behind on your premium payments, insurers will almost always provide you with a grace period to catch up. Or if they discover that there is a driver in your household who is not listed on the policy, they will likely provide you the opportunity to add that person. In cases where you receive a chance to correct a problem, the best advice is to do so as soon as possible.