A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 26, 2021

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Here's what you need to know...

  • In most states, anyone who owns a vehicle that has license plates is legally required to buy a minimum amount of coverage
  • Many states now require new vehicle owners to provide proof of insurance when they are applying for plates
  • There are only a few reasons that a company can cancel your coverage during the policy term
  • If your policy cancels either during the term or at your renewal, you could face serious penalties if you allow your coverage to lapse

In virtually every state, it’s illegal to drive without insurance. From the moment that you register your vehicle, it’s your responsibility as the registered owner of the car to maintain continuous auto insurance coverage. There are so many reasons why, but the main reason is that in the event of an accident, ensuring that both you and your vehicle are protected can help you financially. It can also help anyone else who is involved in said accident. Not to mention, a license suspension can be pretty expensive if you’re found to be driving without an auto insurance policy.

If there’s any lapse in coverage, you could face serious penalties that may wind up costing you may than an insurance policy would have.

The best way to avoid the stiff penalties of being uninsured is to keep your insurance active. Making on-time payments is one way to prevent your policy from getting canceled, but unfortunately, some terminations are beyond your control. Especially if it becomes the decision of your insurance company.

Here is what you need to know about car insurance cancellations and what happens when your coverage terminates.

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What is some information that can help lead to understanding your insurer’s right to cancel your coverage?

An insurance company can’t cancel your auto policy for just any reason. The only time that your insurance company has the right to cancel your policy for any reason is during the policy’s 60-day binding period. During this time which acts as a sort of grace period, the insurance company may cancel your policy. However, any auto insurer would have to send you a cancellation notice before they do so. It’s wise not to miss any sort of insurance payment during this time period. A late payment is a sign that you may not be the client that they want to insure.

If you apply for coverage and the insurer decides to cancel your policy before it’s issued, you will receive a notice in the mail telling you when your coverage terminates. If you’re guilty of lying on your application or you’ve been convicted of fraud in the past, the insurer is free to backdate your cancellation, which is called a policy rescission. So when applying, don’t lie about anything, including your driving record or your credit score, which are two factors that most companies look into.

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What are your rights as a consumer?

Every state department of insurance drafts a Consumer Bill of Rights that details when an insurer may and may not cancel your coverage. After the binding period, state law allows few reasons for policy termination before the term is ended.

Here are the most common reasons carriers can cancel coverage in the middle of a term:

  • Nonpayment of premiums
  • Material misrepresentation on the policy
  • Fraudulent claims
  • A suspended or revoked license
  • A disability that affects the driver’s ability to legally operate a vehicle

Is it against the law to drive without some form of coverage?

Most states have mandatory auto insurance laws. In states with financial responsibility laws, drivers are given the option to buy insurance or deposit their own money as a form of self-insurance. If you don’t comply with the laws in the state where your vehicle is registered, you are guilty of a misdemeanor.

Since you have to carry continuous coverage while your vehicle is registered, even a short lapse of insurance is a violation of the law. A high-risk driver is someone who doesn’t have coverage and then proceeds to drive recklessly and rack up traffic violations. However, a lapse of coverage doesn’t just apply to vehicles that you take on the road.

Previously, you used to be caught violating the law to get charged; now you may face penalties for being uninsured even if your vehicle is parked in your driveway.

How does the state know when you have a policy lapse?

If you don’t pay your premiums or your policy doesn’t renew, thus giving you a gap in coverage, the state will more than likely find out. More and more licensing departments are investing in electronic verification systems that give them access to the status of insurance policies real time. Whenever a policy cancels, that cancellation will be reported.

While some states still randomly select which vehicle owners need to verify coverage, it’s more common for states and companies to communicate through a two-way systems. If your state requires carriers to participate in a verification program, there’s no way to avoid being penalized when your insurance cancels.

This is why you want to make sure that your policy period doesn’t see an interruption of any sort, because chances are your current policy is being reported to the state you live in.

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What are the penalties for being uninsured?

The penalties for owning an uninsured vehicle can be steep, even if you’re not caught by law enforcement. If you’re cited by law enforcement, you have to pay a penalty and appear in court in front of a judge. It’s also possible that your vehicle will be impounded, and you will be escorted to jail for the offense. Here are other penalties:

  • Suspension of your vehicle registration
  • Suspension of your driving privilege
  • Fees and fines for letting your insurance coverage lapse
  • Reinstatement fee charged to get your license plates back
  • Mandatory community service
  • Vehicle impound and impound/storage fees

What happens to your insurance rates when your policy cancels?

Letting your insurance cancel can have a major impact on your future insurance rates. When you have an established insurance history, you may qualify for a prior insurance discount. Not only do you lose this discount when you have a lapse, you may also pay high-risk rates.

You may also want to be mindful of the fact that this includes a situation where your provider cancels your service. Since they issue a notice of cancellation, you cannot say that you weren’t aware of the fact that your coverage had lapsed. Insurers are meticulous about this fact, because if they don’t send a policy cancellation notice, they could get into serious trouble.

Can you reinstate your coverage after it cancels?

When your policy cancels and then you reactivate it’s referred to as a policy reinstatement. Not all policies are eligible for reinstatement after they cancel.

In most cases, you can reinstate a policy that’s canceled for non-payment if it’s only been 30 days or less since the cancellation was processed.

Some companies also allow you to reinstate coverage when the policy is canceled after you’ve failed to provide information that was requested. As long as the information that you provide is sufficient and you still meet underwriting guidelines, the coverage can be reactivated with payment.

If it’s too late to reinstate your coverage with your current insurer, or you’d rather go through a new insurance company, you should shop around to find the best rates. Some companies offer better rates than others to high-risk applicants who have been caught without insurance. You could spend just a small period of time looking at your options before finding something, possibly even better than your previous policy, simply due to the vast amount of companies out there.

The most effective way to compare premiums is to use an online rate comparison tool. You can even use your previous insurer when comparing prices. Enter your zip code in our FREE tool to get started!


  1. https://www.tdi.texas.gov/rules/bor-auto-english.html
  2. http://carinsurance.about.com/od/California/a/Penalties-For-Driving-Without-Car-Insurance-In-California.htm
  3. http://www.kbb.com/car-advice/articles/five-things-you-might-not-know-about-car-insurance/
  4. http://www.insurancejournal.com/news/national/2014/11/21/347749.htm
  5. http://www.mass.gov/ocabr/insurance/vehicle/auto-insurance/massachusetts-consumer-bill-of-rights-for.html
  6. https://www.iii.org/article/background-on-compulsory-auto-uninsured-motorists
  7. http://www.michigan.gov/sos/0,8611,7-127-1631_59983—,00.html
  8. http://www.bmv.ohio.gov/susp-ins-random-selection.aspx
  9. http://www.consumerfed.org/pdfs/140310_penaltiesfordrivingwithoutautoinsurance_cfa.pdf
  10. http://carinsurance.about.com/od/PolicyFundamentals/a/How-Do-I-Get-My-Car-Insurance-Policy-Reinstated.htm