Can a car insurance company drop me?
You may have heard of car insurance companies dropping customers for various reasons. Any car insurance company can drop you; however, there are rules about how long a company must cover you and what procedures they must follow in notifying you of a discontinuation of coverage.
In order to understand this process, you must understand how auto insurance coverage works to begin with. When you apply for coverage with a car insurance company, both you and the insurer sign a contract agreeing to certain terms. The insurer agrees to provide coverage for you and your automobile (as well as any other persons covered by your policy) for a given period of time, usually six months. You, in turn, agree that you have disclosed all pertinent information to the insurer, which allows the company to calculate your premium for this coverage.
Car Insurance is a Temporary Contract
Since the nature of this relationship is based on a “temporary” contract which must be renewed periodically, either party is free to cancel the relationship at any renewal period. In theory, this provides protection for both the insurer and the insured party, by allowing either of them to end the business relationship at any time.
Most renewal periods are a time for reassessing the circumstances of the driver and allowing the company to figure if there should be an increase in your premium prices. Car insurance companies sweep public records to discover if points have been added to your license; if so, they can refuse to renew your policy or raise your premium rates. Similarly, you can choose to go with a different company when your renewal period comes around, if you do not like the prices of your current company or have problems with their service.
However, the right to cancel or terminate coverage by either party also has its limitations. Once a contract has been signed between a customer and an insurance company, it is binding for the period of coverage. Even if you have an accident, your insurance company cannot cancel your policy and refuse to cover you. Likewise, you cannot refuse to pay your premiums and expect to receive coverage from the company.
Will I always receive written notice of a terminated policy?
In most cases, cancellations on the part of the company are handled by notifying the insured of the date of termination of coverage in writing. Once the insured has been notified, he or she has a certain amount of time to get new coverage before the existing coverage expires. In no states are car insurance companies allowed to simply drop coverage without warning.
Sometimes, auto insurance providers drop coverage for non-payment of premiums. In this case, state laws closely dictate exactly which procedures should be followed and how much time a company has before they can cancel coverage. In many states, there is a minimum ten-day “grace period” during which the company must continue to provide coverage, even if premiums are not paid. If the premium is paid within this time period, coverage must be continued without interruption.
Some states also provide for an extended period past the grace period in which a company must continue to provide coverage if the covered driver is in an accident. However, utilizing this technique can backfire for an insured person; many companies check your payment history and may not offer you insurance if you have a poor payment record.
Can a change in credit score affect my premiums?
Your credit rating can also affect whether you are offered a renewal on your insurance. Many car insurance companies use your credit report to determine your premiums; theoretically, if your credit rating drops low enough, your insurance could be cancelled. However, in most cases, a bad credit report will only result in an increase in your insurance premiums.
Will a DUI automatically cancel my insurance?
You can also have your insurance cancelled for certain specific actions in some states. For example, some states allow auto insurance companies to cancel policies immediately if the customer receives a DUI or uses the car in the commission of a crime. In this case, the company must only notify the customer that cancellation is imminent. Many policies also have exclusions for these events, which means that the driver is never covered for a DUI or a criminal use of the vehicle, even if the person has paid all premiums and is otherwise covered by the insurance policy.
Customers also have the right to cancel coverage if the insurance company raises rates or otherwise fails to perform according to their agreement. You may decide to shop for insurance prior to your renewal date. In many cases, if you find a new policy with better terms, you can transfer your insurance immediately. However, you should read your policy carefully and determine if your company allows you to do this and will refund the unused portion of your coverage payment.
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