Can Your Car Insurance Company Drop You? What to Know About Cancellation

Auto insurance is vital for protecting your finances if you’re involved in an accident, but your car insurance company can drop you in certain circumstances. With cancellation, the insurer terminates the auto policy currently in effect. With nonrenewal, you retain your existing coverage until the expiration date, but the insurer won’t renew the policy for an additional term.

Most states require drivers to carry liability insurance. Driving without insurance can cost you your driver’s license, result in fines, and risk your financial wellbeing, so losing coverage is likely to leave you scrambling to find a new insurance policy.^[1]

The best way to avoid this situation is to understand the reasons for cancellation and nonrenewal. But even in a worst-case scenario, you'll be able to compare car insurance quotes to find a new policy.

Cancellation vs. nonrenewal: What’s the difference?

Cancellation and nonrenewal both result in a loss of coverage, but they occur for different reasons and can affect future coverage in different ways.

• Policy cancellation: When an auto insurance company cancels a policy, it terminates the policy before it has expired. Say, for example, your current policy begins on Jan. 1 and expires on June 30. A termination between those dates would constitute a cancellation.

• Policy nonrenewal: Nonrenewal is different. Using the same Jan. 1 through June 30 example, a nonrenewal would keep your current car insurance coverage in place until June 30. Come July 1, you’d need to have a new policy in place or else you’d be uninsured.

The insurance company must notify you before canceling your policy or electing not to renew it. However, specific notification requirements vary according to state law. In New York, for example, the insurer must notify you at least 15 or 20 days before the cancellation date, depending on the reason, or 45 to 60 days before a nonrenewal.^[2]

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Common reasons insurers may cancel your policy

Your insurer can cancel your policy for any reason in the first 60 days. After that, it must have a valid reason.^[3] Common reasons include:

• Unpaid insurance premiums: Nonpayment is among the most common reasons for policy cancellation. It’s also the most easily fixed, provided you pay your car insurance premium in a reasonable time frame.

• A revoked or suspended driver’s license: If your state revokes or suspends your license, the insurance company can cancel your policy.

• Fraud or misrepresentation on your auto insurance application: Your insurance company can cancel your auto insurance if you made false or misleading claims on your application. Examples include lying about your garaging address or driving history.

• DUI conviction: In some states, a conviction for driving under the influence could result in your insurance company canceling your coverage.

• Serious or excessive traffic violations: Even if your state doesn’t allow insurers to cancel policies because of too many accidents or tickets, it might suspend or revoke your driver’s license. Your insurer could drop you as a result.

Common reasons insurers may not renew your policy

Insurers usually aren’t required to renew your insurance policy, although some states limit unrestricted nonrenewals to policies that have existed for a short period of time — less than two years, for example. Prior notice is always required; state law might also require the insurer to provide a reason.

Some potential reasons for nonrenewal relate to your driving history, while others are beyond your control:

• Unpaid premium on a renewing policy: Just as nonpayment of a premium gives insurers a valid reason to cancel your policy, failure to pay the first premium can keep the policy from renewing.

• A number of insurance claims in rapid succession: Multiple at-fault accidents and other car accidents that produce costly insurance claims might put you over the threshold for the level of risk your insurer wants to take on.

• A big hit on your driving record: If you accrue moving violations — like a DUI, traffic violations, and other tickets — over the course of your policy term, your insurer might decide you’re too high-risk to insure.

• A lower credit score: Insurers typically view drivers with lower credit scores as more likely to file insurance claims. A dip in your credit score increases your risk to the insurer and could lead it to drop you.

• Your insurer no longer offers policies in your area: Your nonrenewal could be due to a change in your insurer’s business strategy.^[4] If your insurer stops providing insurance where you live, you’ll need to find a different one.

How getting dropped can affect insurance rates

Whether being dropped by your auto insurance company affects your rates — and by how much — depends on the circumstances of your policy cancellation or nonrenewal.

If, for example, the insurer didn’t renew your policy because it no longer issues policies in your area, the nonrenewal is no reflection on you. The policy you ultimately purchase from a new insurer might have a different premium than the nonrenewed policy had, but the nonrenewal won’t have been a factor.

Alternatively, cancellation or nonrenewal for cause could have a significant effect on the rates you pay for future coverage if the reason makes you riskier to insure. Say, for example, you have collision coverage and are at fault in an accident that results in a total loss. In addition to the accident prompting a nonrenewal with your current company, your claims history might cause your new insurer to charge you a high rate.^[5]

What to do if your insurer drops you

A car insurance cancellation or nonrenewal notice is a scary thing to receive, but it doesn’t always mean you’ve lost your policy for good. Even if your current policy can’t be salvaged, you have options for purchasing new coverage:

1. Determine the reason for the cancellation or nonrenewal. A cancellation notice will include the reason the policy is being canceled, and a nonrenewal notice might, too. But it’s a good idea to call the insurance company and speak with an agent who can provide a detailed explanation and answer any questions you might have.

2. Correct mistakes. Perhaps the notice was triggered by an overlooked payment or an innocent error on your application. Ask your insurance agent if making the payment or correcting the error will allow the insurer to reinstate your policy.

3. Read the cancellation or nonrenewal notice carefully. The notice should state the date your coverage ends. That’s vital information — you’ll need to purchase new coverage by that date if you can’t get your current policy reinstated or renewed.

4. Shop for a new policy. As you shop for rates, watch for discounts you might qualify for, such as for having multiple policies with the same insurer, having a positive driving history, or driving infrequently or for short distances.

5. Secure new coverage. It's important that you secure a new policy before your current one ends. A lapse in coverage can negatively affect your rates in the future.

6. Correct behaviors or issues that contributed to the situation. For example, if your insurer dropped you because of excessive moving violations, completing a driving safety course might convince your new insurer that you’re now less risky to insure.

Car insurance cancellation and nonrenewal FAQs