What happens if car insurance gets canceled?

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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.

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 car insurance from getting canceled, but unfortunately, some terminations are beyond your control.

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

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Understanding Your Insurer’s Right to Cancel Your Coverage

Insurance companies can’t cancel your policy for just any reason. The only time that the insurance company has the right to cancel your policy for any reason is during the policy’s 60-day binding period. During this period, the insurance company may cancel your policy.

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.

Your Rights as an Auto Insurance 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:

  • Non-payment 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

It’s Against the Law to Drive Without Auto Insurance

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.

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 car insurance cancels?

If you don’t pay your premiums or your policy doesn’t renew, 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, the 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.

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.

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 or you’d rather buy insurance from a new carrier, 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.

The most effective way to compare premiums is to use an online rate comparison tool. Enter your zip code in our FREE tool to get started!

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