Why Car Insurance Companies Cancel Coverage
Why car insurance companies cancel coverage depends on the level of risk you pose to the company. DUI convictions are filing too many claims are just a few reasons why auto insurance companies cancel coverage. While auto insurance providers cannot cancel coverage without a valid reason, they can issue a non-renewal notice detailing when your policy will end. If your coverage has been canceled, enter your ZIP code below to find new and affordable auto insurance.
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UPDATED: Jul 19, 2021
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While they won’t do so without a valid reason, car insurance companies can and will cancel a driver’s policy or issue non-renewal notices (DNR) on occasion. If they’re public companies, they’re of course beholden to their shareholders, and they are expected to maximize return. But it isn’t just public insurers that have to do so. Private corporations have the same sort of obligations to their employees as a business owner. After all, they represent thousands to millions of customers and policy holders. Because insurance is based on risk, insurers are adverse to too much risk. So they’ll look to cancel policies they see as containing too much risk or throws up red warning flags.
Larger companies may be less likely to do this. It’s simple numbers. They have enough customers to offset a certain amount of elevated risk. An independent insurance agent makes the sale. But insurance underwriters or algorithms set the rate to offset this risk. Then customers decide how much they can tolerate.
What Do Insurance Companies Consider an Unacceptable Risk?
The reasons auto insurance companies cancel policies aren’t exactly mysteries. They’re written directly into the policy you purchase from them. These reasons normally fall within six specific categories.
Breaking the Terms of Your Auto Policy
Anytime you violate the terms of your auto policy, you’re likely to get questions from your insurer. If you own a home-based or small business, and use a personal automobile in conducting that business, your policy could be cancelled at any time. Business use of a personal automobile isn’t covered by basic consumer auto insurance policies. Such use requires a separate, commercial auto policy.
Committing Outright Fraud or Lying to an Insurer
When you’re shopping for auto insurance or when you’re making a claim on a policy, it’s important to be as truthful and thorough as you possibly can be. Any sort of discrepancy, even if it isn’t intended as a “lie” can be used to not simply cancel a policy or issue of a DNR notice on your car insurance coverage. They can also be used as a reason to deny a claim that is otherwise valid.
You should strive to provide truthful information to your insurer. Things like the drivers in your household, primary drivers of specific vehicles and even the annual mileage you report to them should all be honest, otherwise, misinformation can become their reason to cancel or issuing a DNR on your auto policy.
Driving Badly and Making Excessive Claims
Okay, so while movies and television, not to mention music and other forms of popular culture have made “driving like you stole it” a “cool” thing, we’re going to have to say that doing so is a perfect reason for your car insurance company to cancel or issue a DNR on your auto policy.
Moving violations, especially serious ones that cause you to lose points off your driver’s license or put your license in jeopardy are the prime issues here. In fact, you won’t even have to get to the point of risking a loss of your driving privileges with some insurers. If your insurer believes you’re too great a risk, they won’t hesitate to drop you as a customer. An insurance agent can help you find a new policy, or you can get quotes online. It will cost you a lot more.
This also goes for excessive claims, or too many claims where you were the at-fault driver. While auto insurers have a maximum amount of risk they’re willing provide a policy for, we’ve even seen some questionable cancellation notices, such as one driver who was cancelled for making three claims related to windshield damage in two years.
Failure to maintain payments on your policy (Nonpayment of Premium)
We cannot stress this enough. Failure to pay your policy premiums is the most common reason an insurance company would cancel your policy or issue a DNR. Some will even take a consistent history of late payments as reason enough to issue a DNR on a policy. They have to assess degree of risk, and drivers who let their insurance lapse are more likely to get in an accident.
Losing Your Driver’s License
Losing your driving privileges, even as a temporary or short-term thing, can cause an insurer to immediately cancel your policy. If you lose your driver’s license for any reason, be it for driving under the influence, points subtracted from moving violations you’ve wracked up, you’re apt to receive notice of cancellation of your insurance policy. If it is a temporary loss, your insurance company may simply decide to issue a DNR.
Even if you’re lucky enough to have your license reinstated quickly, if you lose it because of DUI or excessive moving violations, you will probably still see an increase in your policy premiums once your policy is renewed. If you experience a huge increase in premium cost rather than getting a DNR or cancellation notice, it might be worth it to obtain quotes to see if you can save money.
Situations within the state you live in
If a state legislature passes new legislation that is considered extremely adverse to an insurer, or if natural disasters or other claims history make it unprofitable or untenable for an insurer to do business there, they may simply stop offering policies. Thankfully, situations like this are rare, but they do happen on occasion. This is unlikely with flood insurance because it’s on a national system. Insurers just sell the policies without taking on risk. Auto insurance doesn’t have the same benefits.
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What Should You Do If You Receive A Cancellation or DNR Notice?
If you’ve gotten a notice of policy cancellation or DNR, the first step you should take is to contact your agent or the insurer directly to see if there are ways to keep your policy active and at the price you currently pay. If that’s not possible, you should then proceed to get a policy from another insurance company, and ensure you’ve got one in place before your current one lapses.
Keep in mind, insurance companies are required to give you a certain amount of notice. So you’ll have time to shop around and find a replacement. Just don’t wait too long.