In some policyowners’ minds, whether your insurance company cancels your auto coverage, or simply chooses not to renew it, it all means the same - you're suddenly without insurance. However, it isn’t quite that simple. The difference between cancellation and non-renewal can be a significant factor in finding another auto insurance policy.
There are specific conditions, outlined in each state’s laws, under which an auto insurer is permitted to cancel your policy. Here are some common ones:
- Failing to pay your premium in a timely manner.
- Losing your ability to drive because your license was suspended or revoked, or because it expired during the term of the policy. This can also apply to any members of your family who are covered under the policy.
- Falsifying information on your insurance application.
Your insurer has the right to cancel your policy at any time if you’re guilty of one of these actions. If it decides to do so, it must send you a written notice of the cancellation that explains why your coverage is being cancelled. Depending on the laws of your state, your insurer must provide 10 to 30 days notice before the cancellation becomes effective.
There is one other instance where an insurer has the right to cancel your coverage, and that is during the 60 day binding period immediately following your application. An insurer could cancel your policy during this time if it discovers some information that marks you as an unacceptable risk.
If your auto insurance is cancelled for any reason, you will likely have trouble finding another insurance company willing to issue you a policy. The only cancellation circumstance where the possibility of reinstatement exists, is being cancelled for not paying your premium.
In this case, you would be sent a letter informing you that your premium was not received and providing a specific amount of time to rectify the situation. If the payment is received before the cancellation date, you will receive a letter of reinstatement. However, reinstatement does carry consequences. You will probably have to pay a late fee and an extra premium to cover the period between the cancellation and the reinstatement.
You auto insurer can also elect not to renew your policy. State laws aren’t always as specific about what constitutes reasons for non-renewal as they are about reasons for cancellation.
If your insurer decides not to renew, it is usually because you filed too many claims for at fault accidents, were convicted of driving under the influence, or were cited for too many traffic violations during the previous three to five years.
As is the case with cancellation, your auto insurer has between 10 to 30 days to send written notice of non-renewal, which should explain the reason they chose not to renew. If this isn’t included in your non-renewal notice, request an explanation from your insurer. The one advantage non-renewal has over cancellation is that it is less of a deterrent in finding another company to provide you with auto coverage.