Receiving a letter that says your auto insurance policy is being canceled can be a shock. Can they really do this? Can my car insurance company drop me like that?
State laws differ, but there is a period of time during which the insurance company can cancel your policy for any reason. This gives the insurer time to investigate the accuracy of your application and determine your level of risk. It’s called the “binding period” and is usually from 30 to 60 days from the day your policy was issued.
The most common reason for a cancellation during the binding period is due to underwriting, says Kristofer Kirchen, president of Advanced Insurance Managers in Tampa, Florida. "Discovering an undisclosed driver, failure to provide requested information and vehicles that do not meet coverage requirements are common.”
Once the binding period has passed, your insurer can cancel only for specific reasons such as nonpayment, fraud or the suspension of your license. These reasons can vary state to state. It’s important to know what to do if you’re denied auto insurance so you can stay insured regardless of your situation.
- During the binding period, usually from 30-60 days, the insurance company can cancel your policy for any reason. After that, there are only a few legal reasons for cancellation.
- Usually, policies are canceled because of something found during the underwriting process that would have stopped the insurer from issuing the policy in the first place had it been known.
- You have the right to know why the policy was canceled, and can request a copy of any reports that resulted in the decision.
What your car insurance company can't do
It may seem like car insurance companies have all of the power, but they actually have to follow strict laws regarding issuing and canceling policies. While state laws differ, there are some basic things a car insurance company simply can’t do.
Below, we’ll outline 10 things your car insurance company can’t get away with.
1. Deny an application for car insurance without providing a reason
Most states require insurers to explain why they are denying an application or non-renewing a policy. If you feel the decision is based on incorrect information, you have the right to review your application and to make corrections and appeal the decision.
2. Prevent you from canceling at any time
Whether you want to switch car insurance companies or have another reason for canceling, your insurance company can’t stop you. You can also change your policy limits or coverage at any time and are entitled to a refund if the changes result in a lower premium.
3. Change your rates in the middle of the term
Although you can change your coverage at any time, which can result in a change of premium, your insurance company can’t change your premium mid-term after the binding period. Any changes to your premium have to be made at renewal, even if you got a ticket in the middle of the term.
4. Cancel your policy without notice
Required notice will vary by state, but your insurer must give you written notice of cancellation or nonrenewal and the reason why. For instance, Texas requires 10 days' notice, while Massachusetts gives you 20 days. If you feel the cancellation is based on inaccurate information, you have the right to appeal.
5. Deny you coverage because another insurance company turned you down
Insurers can look at a variety of factors when evaluating your application, but they can’t deny coverage based on the fact that you have been denied by another insurer.
6. Turn you down because you have previously been insured by an assigned-risk plan
The vast majority of high-risk drivers don’t have to resort to assigned-risk plans, the last-resort insurance for drivers unable to find coverage on the open market. But because every state requires some kind of liability coverage for all drivers, insurers in those states agree to share the burden of these highest-risk clients. But they can’t deny you a policy later on because you were previously insured by an assigned high-risk plan.
7. Deny you coverage solely based on your credit history
While insurers in most states consider a credit-based insurance score when setting your rates, they cannot deny coverage based solely on your bad credit.
8. Require full payment upfront
Most insurers offer a small discount if you pay the policy in full, but they cannot require it. You have the right to pay for your insurance in installments. Insurers are allowed to charge a fee for each installment. (One exception is if you have SR-22 insurance that requires an SR-22 form, which is a form that your car insurance company must file with the state to show that you have obtained -- and will maintain -- certain auto insurance coverages.)
9. Refuse to explain why they are turning you down
Insurance companies are allowed to determine that you don’t meet the qualifications for a policy with them. However, they do have to tell you why.
10. Make changes to your coverage without your knowledge or permission
Any insurance company can’t change your liability limits or add or remove any coverage from your policy without your agreement. Once the policy is issued, it’s a legally binding contract, and the company can’t make changes (but you can).
