What to Do If You Lose Your Car Insurance

Nobody wants to hear these words from an insurance agent: "We can no longer provide coverage for your vehicle."

Your auto insurance company can drop you in two ways: nonrenewal or cancelled car insurance. Nonrenewal occurs when your insurer decides not to renew your policy at the end of its term. It could be for business reasons unrelated to you, or it could be because the company regards you as a higher-risk customer — perhaps because you've filed insurance claims. Cancellation is a more serious situation that occurs when the insurance company decides to discontinue coverage before the end of your term. State law frequently governs the circumstances under which an insurer may cancel your policy.

Nonrenewal: Start shopping

Your insurer may decide not to renew your policy for reasons unrelated to your driving record. For example, it could discontinue a specific type of coverage or decide to write fewer policies in your area. Whatever the reason, your insurer must notify you in advance — the amount of time depends on your state. In California, for example, an insurer must deliver a written notice of nonrenewal at least 30 days before the policy's expiration date, or 20 days before if the reason for nonrenewal is failure to pay.

If this occurs, begin looking for a better deal with another company.

According to Lynne McChristian of the Insurance Information Institute, a trade group, “being nonrenewed carries no stigma at all.”

Car insurance cancellation: Be prepared to pay more.

Cancellation is much more difficult because it occurs as a result of your actions. Customers' policies are frequently cancelled by insurers when they:

  • On their applications, they misrepresent themselves.
  • License suspensions or revocations are issued.
  • Are convicted of driving under the influence (DUI)
  • Have a history of accidents and/or moving violations
  • They do not pay their premiums.

Again, insurers are required to provide notice. In California, an insurer must provide a cancellation notice at least 10 days prior to the effective date if the reason for the cancellation is nonpayment, or 20 days prior if the cancellation is for any other reason. Any unused premium will be refunded by your insurer.

If you receive a cancellation notice, you will most likely have difficulty finding coverage from other standard insurance carriers and will have to pay a higher premium for coverage through the “nonstandard” insurance market. According to Richard Muñoz, owner of a State Farm agency in Austin, Texas, your nonstandard premium could be 10% to 50% higher than your standard premium, depending on the reason for your cancellation.

If you receive a cancellation or nonrenewal notice, deal with it right away to avoid going without insurance for even a short period of time.

Can you fight it?

Maybe. If you believe your nonrenewal or cancellation is unjust, contact your agent or insurance company and request more information. Best case scenario: The problem is a misunderstanding that can be easily resolved. Muñoz once had a client whose license suspension notice was not forwarded to her new address due to an unpaid ticket. She paid the fine and was re-insured.

If you believe your insurer is treating you unfairly, you have the right to file a complaint with your state insurance department.

Other insurance options

What if you are unable to resolve a cancellation? Welcome to the out-of-the-ordinary market. According to the Insurance Information Institute, these policies account for about one-fifth of the auto insurance market. People cancelled because of application misrepresentation and payment or driving history, as well as very young and very elderly drivers, those with bad credit or lapsed coverage, immigrants with no U.S. driving history, and owners of “exotic” vehicles, are all part of the nonstandard market.

Nonstandard policies are issued by both specialty insurers and divisions of larger insurance companies. Nationwide, for example, owns nonstandard insurers Titan and Victoria, while American Family Insurance owns The General.

Drivers who are unable to obtain even a nonstandard policy can apply to their state's "last resort" insurance plan. AIPSO, an industry group, provides a state-by-state list of these plans.

The good news is that today will not last forever. Tickets, accidents, and even DUIs will eventually be removed from your record. You could be eligible for standard insurance coverage again in as little as three years.

In the meantime, try to keep your driving record clean. Consider enrolling in a defensive driving course as well. This demonstrates to an insurance company that “you're being proactive and that you want to be a safe driver,” according to Muñoz.

Few people look forward to receiving breakup letters. But don't let the cancellation or non-renewal of your car insurance policy complicate your life any more than it has to. It is not an option to drive uninsured for even a single day. Use these pointers to stay insured and on the road.