10 things your auto insurance company can’t do

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 and setting rates. 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 premiumThe payment required for an insurance policy to remain in force. Auto insurance premiums are quoted for either 6-month or annual policy periods..

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. The binding period may last between 30 and 60 days, and is the period during underwriting when insurance companies review your details and can make changes to quoted rates based on anything uncovered.

After that, rates are locked in, and 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 for no reason or without notice

Insurance companies have a short binding period during which they can cancel your policy for several reasons. "Discovering an undisclosed driver, failure to provide requested information and vehicles that do not meet coverage requirements are common,” says Kristofer Kirchen, president of Advanced Insurance Managers in Tampa, Florida.

After that time, the list of cancellation reasons becomes much shorter, and the insurance company generally must wait until renewal to nonrenew your policy instead (refuse to renew it), which they can do for a variety of reasons. Cancellation ends your policy before the end of the term and requires very specific legal justification. Nonrenewal simply means your policy won't be renewed at the end of the term and has a wider range of justifications, allowing insurers to use it more freely.

However, they must have a legally permitted reason, and they are required to give you notice, which varies based on state law and the reason.

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. However, they can deny you coverage for the same reasons the other insurer gave, such as your driving record.

6. Turn you down because you have previously been insured by an assigned-risk plan

Insurance companies can't deny you coverage simply because you were previously insured through an assigned-risk insurance plan. Assigned-risk plans are the last-resort insurance for drivers unable to find coverage on the open market, usually because they are high-risk drivers. However, 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.

If you have improved your record and now meet the requirements to be insured on the open market, an insurance company can't deny you coverage just because of your past insurance through such a 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: If your insurance company must file an SR-22 form on your behalf, proving that you have the required amount of car insurance, it can require you to pay the full term premium upfront. This is to prevent drivers from cancelling their insurance once the form is filed.

9. Discriminate based on membership in any protected class

Insurance companies can't refuse you coverage based on any federally protected class or any class protected by state law. That includes race, religion, national origin and sexual orientation, among others.

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).

What to do if your insurer violates these rules

If your insurance company violates any of the rules above, or you believe it may have, you have the right to contest it. Follow these steps to resolve the problem:

Contest the action in writing. Send a registered letter to your insurance company outlining what happened and which rule you believe has been violated. Be as specific as possible, pointing to language in the policy contract or in the statutes that backs up your complaint.
Contact your state's insurance regulator. Each state has a department dedicated to regulating insurance companies and ensuring compliance with the law. You can file a complaint against your insurance company and also contact the department for advice on how to proceed.
Consult an attorney. Many lawyers specializing in insurance matters will offer a free consultation to let you know if you have a case against your insurance company. From there, you can decide whether to pursue legal action.

State laws governing insurance cancellation, rating, and nonrenewal vary, so it's important to understand the laws in your state of residence. Contact your state's insurance department to verify the laws and your rights.

FAQ: Your auto insurance rights

Can an insurance company cancel or change your policy without notice?

No, an insurance company cannot change your policy without giving you notice, nor can they cancel without notice. They must inform you before making any changes to your policy, including cancellation.

Can an insurance company add a driver without your permission?

No, an insurance company cannot add a driver to your policy without your permission. They need your consent before making any changes to your policy, including adding a driver.

Can an insurance company cancel your coverage mid-term?

Yes, but only for specific reasons outlined by law. Those reasons are nonpayment of premiums, fraud or material misrepresentation (something you lied about or concealed that would have changed the decision to issue your policy).

Can my car insurance rate be changed mid-term?

No. Once your insurance policy has been issued with underwriting complete, your rate can't be changed until renewal.

Is it legal to deny insurance coverage because of bad credit?

No. Even though most states allow insurance companies to consider credit when setting rates, you can't be denied coverage just because you have bad credit.

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