They’re the words no one wants to hear from an insurance agent: “We can no longer provide coverage for your vehicle.”
There are two ways you might be dropped by your auto insurance company: Nonrenewal or cancelled car insurance. Nonrenewal happens when your insurer decides to part ways with you at the end of your policy term. It might be for business reasons that have nothing to do with you, or it might be because the company views you as a higher-risk customer — perhaps because you’ve made insurance claims. Cancellation is more severe and happens when the insurance company decides to stop coverage before the end of your term. State law often dictates the situations in which an insurer can cancel your policy.
If you find yourself in either of these situations and you need car insurance, here’s what to do.
Nonrenewal: Start shopping
Your insurer might choose not to renew your policy for reasons that have nothing to do with your driving record. For example, it might phase out a certain kind of coverage or decide to write fewer policies in your region. No matter the reason, your insurer will have to notify you in advance — how far in advance depends on your state. For example, in California an insurer must deliver a written notice of nonrenewal at least 30 days before the end date of the policy, or 20 days before if the reason for nonrenewal is failure to pay.
If this happens, start looking for a good deal with another company.
“To be nonrenewed carries no stigma at all,” says Lynne McChristian of the Insurance Information Institute, a trade group.
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Cancelled car insurance: Be prepared to pay more
Cancellation is much more problematic because it happens as a result of your behavior. Insurers often cancel the policies of customers who:
- Misrepresent themselves on their applications
- Receive license suspensions or revocations
- Are convicted of DUIs
- Have numerous accidents and/or moving violations
- Don’t pay their premiums
Again, insurers must provide notice. In California, an insurer must deliver a cancellation notice at least 10 days prior to the effective date if the reason is nonpayment, or 20 days prior if the cancellation is for other reasons. Your insurer will refund any unused premium.
If you receive a cancellation notice, you’ll probably have trouble finding coverage from other standard insurance carriers and will have to pay more for coverage through the “nonstandard” insurance market. Depending on the reason for your cancellation, your nonstandard premium might be 10% to 50% higher than your standard premium, according to Richard Muñoz, who owns a State Farm agency in Austin, Texas.
If you receive a cancellation or nonrenewal notice, deal with it immediately to avoid becoming uninsured for even a short time.
Can you fight it?
Maybe. If you think your nonrenewal or cancellation is unfair, call your agent or insurance company and ask for details. Best case scenario: The situation is a misunderstanding or can be easily fixed. Muñoz once had a client whose notice of license suspension — due to an unpaid ticket — wasn’t forwarded to her new address. She paid the fine and regained her coverage.
You also have the right to complain to your state insurance department if you think your insurer is treating you unfairly.
Other insurance options
What if you can’t resolve a cancellation? Welcome to the nonstandard market. About one-fifth of the auto insurance market is made up of these policies, according to the Insurance Information Institute. The nonstandard market includes folks canceled because of application misrepresentation and payment or driving history, as well as very young and very elderly drivers, those with bad credit or lapsed coverage, immigrants with no U.S. driving history, and owners of “exotic” vehicles.
Both specialty insurers and divisions of major insurance companies issue nonstandard policies. For example, Nationwide owns nonstandard insurers Titan and Victoria, and American Family Insurance owns The General. (To learn more about this market, check out NerdWallet’s choices for the “Best Car Insurance for High-Risk Drivers.”)
Drivers who don’t qualify for even a nonstandard policy can apply to their state’s “last resort” insurance plan. An industry group called AIPSO provides a state-by-state list of these plans.
The good news: Today isn’t forever. Tickets, accidents and even DUIs eventually fall off your record. In as little as three years, you might be eligible for standard insurance coverage again.
In the meantime, do your best to maintain a clean driving record. Consider taking a defensive driving course, too. Doing this shows an insurance company that “you’re being proactive and that you want to be a safe driver,” Muñoz says.
Few people enjoy getting breakup letters. But don’t let the cancellation or nonrenewal of your car insurance policy make your life more complicated than it has to be. Driving uninsured for even a single day is not an option. Use these tips to stay insured and stay on the road.
Donna Freedman is a contributing writer at NerdWallet, a personal finance website.
Image via iStock.