What to Do if Your Car Insurance Policy is Cancelled
Ugh! You walk in the door after a hard day at work and get a notice that your car insurance has been cancelled. Talk about the perfect ending to a now-terrible day. You probably know why it happened, but you might not know how to fix it. Not to fear, a car insurance cancellation isn’t the worst thing that could happen, and you can usually fix it quickly. Here’s how to go about it.
The Reason for Cancellation Matters
Car insurance policies can be cancelled for several reasons. eSurance lists the most common reasons for car insurance cancellation as failure to pay, committing fraud, losing your license or experiencing serious health issues that make driving unsafe. And most of the time, failing to pay the premium is the culprit. Your state’s laws determine the reasons companies can cancel your policy.
Cancellation versus Non-Renewal
It’s important to understand that cancellation is different from non-renewal. The law offers different protections for each situation, so this distinction really matters. Most states allow an insurance company to cancel your policy after the first 60 days for any reason at all. But after that, they have to have a very good reason to end your policy before the expiration date.
According to the National Association of Insurance Commissioners (NAIC), companies can cancel your policy if you fail to pay your premium or if it’s discovered that you lied on your car insurance application. Even then, the lie must cost the company money before it’s enough to let them cancel your policy. This is called a “material misrepresentation”, and it’s not something you can do by accident. Examples include setting your car on fire and claiming it was an accident, or lying about your driving records.
And, as eSurance notes, there are other reasons a provider can cancel your insurance, but they are very few. The exact reasons allowed vary by state, but fraud and non-payment are the universally accepted reasons for cancellation. Your state’s department of motor vehicles or insurance department will have information on the laws that apply to you.
Non-renewal is a different game altogether. A company can choose not to renew your policy for any reason. The policy expiration ends the contract of insurance, and there are no requirements for either you or the insurance company to continue the agreement.
Whether it’s for cancellation or non-renewal, your insurance company usually has to give you 30-days’ notice. But if the cancellation is because of failure to pay premiums, they only have to give you 10-days’ notice, mailed to your last listed address. If they don’t have the right address, they’re off the hook for you not receiving notice. Typically, companies send notice by certified mail so you can’t say you didn’t know. But in some states, they only have to send notice by first class mail.
What Happens After Your Car Insurance is Cancelled
If your car insurance has been cancelled, your options might be limited, especially if the cancellation was for non-payment of premium. Insurance companies keep track of these things and tell each other about your failure to pay. In Massachusetts, your new car insurance company can tack on any unpaid premiums from a previous policy. This is actually a good thing because it means the unpaid premium won’t end up in collections, ruining your credit. Plus, you can’t buy another policy in Massachusetts until the old one is paid. At least the system lets you buy another policy in order to get back on the road (legally).
If you have a loan on your car, the loan requires you to carry car insurance, and things might play out a little differently. You could get a short grace period to buy new insurance, end up paying for a policy that the lender finds for you (at a potentially much higher cost), or have your car repossessed for breaching the contract.
Shopping for a New Car Insurance Policy
Driving around without insurance is not an option. You could pay fines or even serve jail time if caught. In some states, your right to sue for accident injuries is barred if you didn’t have car insurance when the accident happened. So having your insurance cancelled is a big mess that you have to fix right away, especially if you need to continue driving.
Unfortunately, when you have unpaid premium, another insurance company might make you pay for the full year’s premium up front before they will accept you. If you didn’t have the money to pay the old premium, you might have trouble coming up with the money to pay a full year in advance.
Your best bet, especially if you’ve always paid before, is to call your insurance company and see if you can’t work something out. A reinstatement saves you the problem of a gap in car insurance that could translate into higher rates later. Finally, if all else fails and you can’t get new insurance in the private market, contact your state’s insurance department. There may be an assigned risk program to help you. You’ll pay a lot more for the insurance, though.
Can You Afford to Drive?
The hard financial truth is that losing car insurance for failure to pay ends up costing you even more. If at all possible, pay your insurance bill to keep the policy in place. Get a second job if you have to. Do whatever it takes (within the law, of course).
If your policy lapses because you don’t have the money to pay it, there’s a good chance you simply can’t afford to drive. At this point, it’s high time to look for public transportation options or buy a bicycle. You can also find ways to eliminate the need for a car by working within walking or cycling distance of your home. You’ll still need to find a solution for some errands, like doctors’ visits, but you’ll be much better off than struggling to pay for car insurance that you can’t afford.