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Can my auto insurance company cancel my policy?

The lowdown...
  • When you buy auto insurance, you should only get quotes from companies that are licensed to sell personal lines car insurance in your state
  • When a company sells insurance to the public, they must comply with the Consumer Bill of Rights that was drafted by the Department of Insurance. Each of the rules written into the bill is in place to protect consumers from predatory practices while they are buying auto insurance
  • One of the first rules that you’ll find is that auto insurance companies can’t cancel your insurance for just any reason. The carrier needs to have a valid reason to cancel your policy before the policy period expires after it’s been issued
  • All new policies go through an underwriting period after the initial application is submitted. During this phase, coverage is provided but the insurance company can choose to cancel the coverage for almost any reason. This period will last between 30 and 60 days
  • Some valid reasons that insurers can cancel policies mid-term include: fraud, false claims, non-payment, or revocation of an insured driver’s license

There’s nothing more frustrating than getting a notice in the mail saying that your insurance company is going to cancel your car insurance coverage.

After you pass the initial stage of panic, you start to wonder why your insurer wants to terminate your policy. You’re also left wondering if any other insurance companies will extend you coverage before your coverage ends.

While it’s not ideal, property and casualty auto insurers are free to cancel your insurance for valid reasons before the policy is up for expiration. Luckily, the company must give you a valid reason and advance notice before the coverage is terminated.

If you’re curious to learn when an insurance company has the right to cancel your policy, read on.

Then, enter your zip code to find car insurance rates that fit your budget!

Why should you buy auto insurance from a licensed carrier?

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There are reputable insurance companies and not-so-reputable ones. Whenever you’re shopping around for coverage, you should focus on getting rate quotes strictly from companies that are licensed to sell insurance products by the Department of Insurance in the state.

Here are a few reasons why it’s important to do business with licensed insurers:

  • You must comply with state insurance laws as a registered vehicle owner. States will only recognize insurance coverage that’s purchased from a licensed company
  • You’ll have access to the company’s complaint record so that you can find out if a carrier has a history of doing bad business
  • You can file complaints with your state department or the National Association of Insurance Commissioners and the agency will investigate to protect your consumer interests
  • You’ll receive a fair and non-discriminatory rate that has been reviewed and approved by the state
  • The insurance company can only cancel your policy for a very specific set of reasons and must comply with the Consumer Bill of Rights in the state

How does the Consumer Bill of Rights protect insurance consumers?

You have rights whenever your shopping for products. In the insurance industry, your rights are written out and given to you with your auto insurance declarations page when you buy coverage.

The purpose of the bill is to describe a policyholder’s rights to find insurance and maintain insurance in a competitive marketplace. Some of the rules laid out in the bill include:

  • You have the right to buy insurance
  • You can’t be denied insurance because your race, religion, gender, marital status, age, occupation, education, or place of residence
  • You have the right to know why your insurance application is being denied
  • You have the right to cancel your insurance at any time
  • You have the right to choose coverage that meets your needs
  • You have the right to fair handling of your claims
  • You have the right to receive a notice in advance when you’re policy is being canceled

When can a company cancel your insurance?

The Consumer Bill of Rights does protect you, but the insurer still has the right to make decisions that are in the best interest of profitability. When you first submit your application, your policy goes through an underwriting period where all of your personal information is reviewed and assessed.

During the underwriting period, before the policy is ever issued, the company can change its mind and cancel your policy.

Unfortunately for some policyholders, there doesn’t have to be a reason for the insurer to take back it’s offer as long as it’s within the first 30 or 60 days of the period. After the policy is issued, the company doesn’t have as much freedom.

When can a company cancel your policy mid-term?

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After the final rate is determined and the policy is issued, you have a lot more protections under the law. When your information is underwritten, the company can’t change your rate until the policy comes up for renewal.

The only time that a policy can be terminated before the policy period is up is when:

  • You don’t make payments by the due date
  • You lied on your application for insurance
  • You violated terms of your auto insurance contract
  • You or someone on the policy knowingly made a fraudulent claim
  • You or a driver in the home has a suspended or revoked license
  • Your vehicle is a danger to public safety

What is a policy rescission?

Most of the time, the company must send you a notice saying your policy is going to be canceled. There are, however, times when the insurer can backdate your cancellation to the beginning of the term so that it’s as if you never had coverage. This is called a rescission.

Policies are generally rescinded when you purposely conceal information to get coverage by misrepresenting yourself on your application.

If the company discovers this, they do have the right to go back and act as if they never approved your coverage. This would leave you with a large lapse of insurance coverage.

If your policy is being canceled for any reason, you need to shop around for insurance right away. You have the right to buy insurance and should get several quotes from multiple companies to find fair rates. Use an online rate comparison tool to find the best policy and bind coverage before you have a lapse.

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