Can an Insurer Cancel Your Car Insurance Policy?

Last Updated on November 12, 2022

You depend on your car insurance to be there when you need it. However, your insurer could cancel your policy.

If you violate the terms of your policy, or if you didn’t pay your premiums, then your insurer could drop your coverage and cancel your insurance policy. However, the insurer must notify you before canceling your policy.

Keep reading to discover everything you need to know about why insurance companies cancel policies – and what to do if it happens to you.

Why Insurers Cancel Policies

If you’re a normal policyholder who pays bills on time and tells the truth to your insurance company, then it’s unlikely that your insurer will cancel your policy.

The most common reasons insurers cancel policies include:

• You didn’t pay your bill
• You lied to your insurer
• Your registration or license was revoked
• You committed insurance fraud
• You made a fake insurance claim

Let’s say you applied for a car insurance policy from GEICO. On the application, you told GEICO you had zero accidents in the past 5 years. GEICO assigns a temporary auto insurance policy to you, then checks your background. During this background check process (called underwriting), GEICO discovers you have one accident on your driving record that you failed to mention. Because of this omission, GEICO may cancel your policy.

Similarly, insurers may cancel your policy because you did not pay your bill. Insurance is a service. The insurer is taking on risks in exchange for payment. If you fail to pay your insurer, then the insurer may cancel your policy.

State Laws Prevent Insurers from Dropping Your Coverage Without Reason

Your insurance company cannot cancel your car insurance because they don’t like you. Instead, they need to provide a reason. State laws prevent insurance companies from canceling policies without reason.

If you lied to your insurer or committed insurance fraud, then the insurer has a reason to cancel your policy.

However, simply getting into multiple accidents is not necessarily a valid reason to cancel your insurance policy. Unless the accidents led to revocation or suspension of your driver’s license, or unless you lied about the accidents, your insurer may not be able to cancel your policy in the middle of the period (although they may fail to renew your policy when it expires).

States Have Different Insurance Laws for Car Insurance Cancelation

All states have laws preventing insurers from canceling your policy without reason. However, states have different laws regarding why an insurer can cancel your policy.

An insurer in Michigan, for example, cannot cancel your policy because you failed to pay your insurance premiums.

Similarly, insurers in North Carolina cannot cancel your policy if your driver’s license was suspended or revoked.

Check your state insurance laws to determine if your insurer has a valid reason to cancel you – or if your insurer canceled your policy in violation of state insurance laws.

How Car Insurance Non-Renewal Works

Insurers may not cancel your policy in the middle of the term without reason, but they may not renew your policy upon expiration.

Most insurance policies last 6 to 12 months. After this period, your insurer can choose to renew your policy or drop you. In this situation, the insurer is not canceling the policy mid-term, so there are few state laws governing the process. If an insurer does not want to do business with you, then the insurer may choose to avoid renewing your policy.

If you have caused several accidents in the last year, then the insurer may not renew your policy after expiration, forcing you to find a new insurer. However, if you’ve only had one or two accidents in the last year, then your insurer will likely raise rates but not cancel you.

Can Insurers Cancel After an Accident?

If you caused a serious accident, then you may be concerned about auto insurance. Can an insurance company cancel you after an accident? Or will the insurer simply raise rates?

You buy car insurance to protect you from accidents. After an accident, the insurer is unlikely to cancel you. Instead, you should be able to continue driving without issue.

However, an insurer could cancel your after an accident if you lied about the accident or if you did not pay your insurance premiums.

After multiple accidents in a short period (typically around 36 months), insurers could cancel your policy. Multiple accidents, speeding tickets, reckless driving citations, and other serious incidents within a short period is considered a valid reason to cancel a policy.

How Car Insurance Cancelation Works

Insurers must have a valid reason to cancel your insurance policy. Common reasons to cancel your insurance policy include:

Failure to Disclose Complete Information: Insurers need accurate information from you during your application. If you lied about your age, driving history, garage location, or other factors (either intentionally or unintentionally), then your insurer could cancel your policy. Insurers may call this “material misrepresentation.” It’s a fancy way of saying you lied on your application, and it could lead to cancelation.

Too Many At-Fault Accidents or Citations Within a Certain Time: After a single accident, your insurer is unlikely to cancel your policy. However, amassing several at-fault accidents, speeding tickets, reckless driving citations, and other serious incidents within a short period of time could lead to cancelation. Typically, you need multiple accidents or violations within a 36 month period for the insurer to cancel your policy.

You Committed Insurance Fraud: You can’t make a fraudulent claim and expect the insurer to continue providing coverage. If you made a fraudulent claim, or if someone made a fraudulent claim against your insurance policy, then your insurer could cancel your policy.

Your License or Registration Was Revoked: You cannot continue to legally drive after your driver’s license was revoked, and you cannot continue to drive a vehicle after that vehicle’s registration is revoked. If your license was suspended or revoked mid-policy, then your insurer could cancel your policy. You may be able to reinstate your policy when your license or registration are reactivated.

You Have a Medical Condition Preventing You From Driving Safely: If you develop a medical issue in the middle of your insurance contract, then your insurance company could cancel your policy. A health condition like heart attacks or epilepsy, for example, could lead to the cancelation of your policy unless your physician provides a statement verifying you can drive safely.

You Started Driving for Business Purposes (Including Uber): If you have changed the way you use your vehicle, then your insurer could cancel your policy. A standard policy only covers non-commercial driving (including your commute to work). It does not cover ridesharing services or other commercial trips.

Your Car Isn’t Safe to Drive Anymore: Some cars develop serious mechanical problems in the middle of an insurance policy. If your car is a danger to public safety, or it failed an inspection, then your insurer could cancel your policy.

How to Avoid Car Insurance Policy Cancelations and Non-Renewals

The best way to avoid cancelations and non-renewals is to be a good driver, be honest with your insurer, and pay your premiums on time. If you can follow these principles, then you’re unlikely to ever deal with cancelations or non-renewals.

Here are some tips for avoiding cancelations and non-renewals:

• Think before filing a claim. Not all claims are worth filing. If your car has only minor damage, then it may be worth it to repair the damage out of pocket. Filing a collision claim will lead to higher premiums and you need to pay your deductible, so think carefully before filing a claim. Plus, too many claims within a short period can lead to non-renewal.
• Drive better. If you’re a safe driver, then you’re less likely to be involved in an accident. Every driver hits a string of bad luck occasionally, but those who drive better are less likely to make an insurance claim. By being a defensive driver, you can avoid accidents and avoid cancellations or non-renewals.
• Pay premiums on time. Most insurers won’t cancel your insurance policy after a single missed payment. Most insurers give a grace period of 15 to 30 days. However, if you have not paid your premiums within that grace period, or if you frequently miss payment deadlines, then your insurer could cancel your policy.
• Avoid lying to your insurer. Your insurer will do a background check to verify your information. Your insurer will also investigate each claim and accident. If you lied to your insurer at any point, and they discover this lie, then the insurer could cancel your policy.

How to Buy Car Insurance After Cancelation or Non-Renewal

If a car insurance company has canceled your policy or failed to renew your policy, then you have options.

Typically, cancelation or non-renewal means you’re a higher risk driver to insure. In fact, other insurers may be able to see this cancelation or non-renewal on your driving record. Some insurers immediately raise rates for non-renewals and cancelations.

If your previous insurer canceled your policy because of multiple accidents, insurance fraud, or other serious incidents, then your next insurer will likely charge higher rates because of these incidents. You’re a higher-risk driver to insure, and that means you’ll pay higher insurance premiums.

Final Word on Having Your Policy Dropped

Insurers cannot cancel your insurance policy without reason. Instead, they need a good reason to cancel your policy – like insurance fraud or non-payment. And, your insurer must notify you in writing before canceling your policy.

If you are concerned about your insurer canceling your policy, then contact your insurer today.