Car Insurance Cancelled? How Auto Insurance Cancellation Works

November 7, 2013

You can always recover from a car insurance cancellation, and if you have to cancel your car insurance prematurely, the fees are usually manageable.

It's possible that you could end up with your car insurance cancelled. If that happens, the situation is about as bad as it can get. What can you do if you have your car insurance cancelled, and how will it affect you in different situations?

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Why Car Insurance Is Usually Cancelled by the Insurance Company

When policies are cancelled, it often happens in the first 60 days of acceptance. In this period the insurance company checks your record, and doesn't have to offer a reason for canceling your car insurance policy.

The usual reasons for having car insurance canceled are for making false claims on your application, having too many accidents on your record, or for having a DUI conviction. Different states allow insurance companies to drop you for different reasons.

Not making your Insurance payments can also result in their cancelling you.

If you feel you've been wrongly dropped, you can appeal the decision and even take the company to court. However, you'll still need to obtain new car insurance during this time.

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Cancelled Car Insurance Means You Can't Legally Drive

It doesn't matter in which state you live, it's illegal to drive without insurance. Once your policy has been cancelled, you're off the road until you obtain new insurance. In the case of shared car insurance, a cancellation of the policy will affect everyone named, so that would involve the entire family.

If you're caught driving without insurance, you'll face a fine, court fees, a conviction on your record and you'll probably have your license suspended for a period of time.

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The Effect Cancelled Insurance Has on Car Loans

If you drive a car on which you're making payments, one of the conditions of the loan is that you have full insurance. This covers the company lending you the money in case of an accident.

The insurance company will inform the company that it's canceling your car insurance policy. At this point, three possible things might happen:

  • The company gives you a short period in which to obtain new insurance
  • The company imposes its own insurance and adds it to your monthly payments
  • They repossess the vehicle, as you'd be in violation of the contract
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How It Affects Your Getting Insurance Policies in the Future

When asked why your policy was cancelled, and any other questions relating to your past driving records and insurance and loan situations, give a truthful answer. It will affect the number of companies that will be willing to insure you, and also the amount you'll need to pay to obtain car insurance. However, at least you should be able to obtain car insurance, which you'll desperately need after having your old car insurance cancelled. Shop around and obtain quotes from a number of companies before making your choice.

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Your Decision to Cancel the Insurance
Choosing to cancel your insurance is fairly straightforward and it is usually done when you are switching insurance from one provider to another.

If you're thinking of canceling your auto insurance, you might want to reconsider. There may be times that you want to cancel an auto insurance policy because you have found a cheaper insurance company or maybe you simply don't have a car anymore. While you never want to have insurance on a car that you don't own, you may want to consider waiting--if you simply found a cheaper policy. The reason is many auto insurance companies (if not most) will charge you a hefty cancellation fee for choosing to cancel your policy.

Depending on the insurance company that you use, policy cancellation fees may run from as little as $50 all the way up to the full cost of the yearly premium amount. Moreover, some insurance companies will also recalculate your premium at a higher rate and charge you the difference--especially, if you use direct debit to pay your insurance premiums.

Currently there are no laws that prohibit insurance companies from charging the cancellation fee, nor are there any laws that regulate how much the insurance company can charge. Therefore, you're at the mercy of the insurance company when you choose to cancel your policy. So, you might want to consider simply not renewing your policy and moving to a cheaper policy when it's time to renew.

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The Difference between Cancellation and Non-Renewal

Auto insurance non-renewal typically happens when your insurance provider decides not to renew your auto insurance policy. This happens for a variety of reasons that include a poor driving record, too many accidents or excess claims against the company. In these cases the insurance company will notify you in advance, typically one month ahead of time. Obviously a non-renewal will not endear you to other insurance companies and could be a deciding factor in decisions to not give you insurance. Drivers that feel that they were dropped without cause usually have the option to appeal the process.

Common Car Insurance Cancellation Scams

The most common type of scam is usually run by small insurance companies claiming to be cheaper than the major companies. In this scam, known as low-balling, the insurance company quotes an unusually low rate to the customer. About a month after the customer signs a policy, he or she receives a letter saying that due to a "company rate error" the premium quote was incorrect, and requests a higher payment. The company threatens to cancel insurance should the customer not pay the higher rate.

The best way to avoid this scam is to deal only with established insurance companies. Well-known insurance companies are less likely to participate in this type of scam, as it would create negative publicity. Most scammers operate small companies that cannot be easily traced to a physical location.

False Insurance Company
Another common scam is that of the fake insurance company. Scammers set up a company that looks like an actual insurance company. After the customer pays, he or she receives insurance cards that are missing key details such as policy numbers. When the customer attempts to file a claim or shows the card to a police officer during a traffic stop, he discovers that the company does not exist. He is then left with legal and financial consequences to deal with.

The best way to avoid this scam is to realize that if a company's offer sounds too good to be true, it probably is. You should always check the reputation of any previously unheard of company with the Better Business Bureau before doing business with them. You can also use Google to search for a company name. Often, a Google search will turn up any complaints customers have about a particular company.

Be Cautious When Purchasing Online
It is also best to be cautious when buying auto insurance over the Internet. Many scammers operate online and do not provide any contact information other than their website. In addition to low-ball scams, some con artists might create fake company web pages in order to steal your personal information. Never provide sensitive data such as your driver's license or Social Security number to unknown companies over the Internet unless you know for a fact that they are a reputable company.

Small Insurance Companies
The final scam customers should be aware of is technically not a scam, but happens often enough that it could be classified as one. Often, small insurance companies offer significantly lower prices in order to compete with the major companies. However, the prices are so low that the companies do not earn enough money to pay off claims appropriately. As a result, if a customer files a claim, the insurance company is unable to provide the promised coverage. The customer ends up paying out of pocket for expenses that were supposed to be covered by the insurance.

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