Insurance Policy Pitfalls: When No-Fault Accidents Lead To Cancellation

It is highly unlikely that an insurance company will cancel your policy after a no-fault accident. However, if you have a history of accidents, speeding tickets, and other moving violations, insurers may categorise you as a high-risk driver, leading to a potential increase in your premium or a decision by the insurer not to renew your policy.

When can an insurance company cancel your policy?

An insurance company can cancel your policy for several reasons, and it's essential to understand these reasons to avoid cancellation and maintain continuous coverage. Here are the key circumstances under which an insurance company may cancel your policy:

• Non-payment of premiums: This is one of the most common reasons for policy cancellation. If you don't pay your insurance bill on time, the company may cancel your policy. Most companies offer a grace period, usually 30 days, during which you can bring your payments up to date to avoid cancellation.
• Misrepresentation or lying on your application/claim: If you provide false or incomplete information when applying for insurance or filing a claim, the insurance company may cancel your policy. This includes lying by omission, such as failing to disclose necessary information.
• Loss of driving privileges: If you have your driver's license suspended or revoked, your insurance company may cancel your policy. This often occurs in cases of driving under the influence (DUI) or driving while intoxicated (DWI).
• Health conditions affecting your ability to drive: Certain medical conditions, such as epilepsy or heart attacks, may require a certificate from a physician confirming your ability to drive safely. If you cannot provide this certification, your policy could be cancelled.
• Fraudulent claims: If you file a claim and are found to have provided false or inaccurate information, your insurance company may cancel your policy.
• Criminal record or "moral hazard": A criminal record or behaviour that poses a "moral risk" may lead to policy cancellation.
• Significant changes in risk: If there are substantial changes in your circumstances that increase the risk for the insurer, they may cancel your policy. This could include changes to your health status, driving record, or living situation.
• Failure to maintain your home or vehicle: If your home or vehicle falls into disrepair or requires significant maintenance, and you fail to address these issues, your insurance company may cancel your policy.
• Unregistered or unsafe vehicles: If your vehicle is not properly registered or inspected, or if it has mechanical problems that endanger public safety, your policy may be cancelled.
• Use of vehicle for business purposes: Personal car insurance policies typically do not cover business use, such as delivering or visiting job sites. Using your car for work may result in policy cancellation.
• High-risk driving behaviour: If you exhibit reckless driving behaviour, have multiple accidents, or accumulate speeding tickets and other moving violations, your insurance company may cancel your policy.

It's important to note that insurance companies are required to provide written notice of cancellation, usually 30 days in advance, and explain the reason for cancellation. Additionally, each state has its own specific regulations regarding policy cancellation, so it's advisable to check with your state's department of insurance for more information.

What happens if your insurance is cancelled?

If your car insurance is cancelled, you will need to act fast to find a new policy so that you can continue driving legally.

Contact your insurer

If you've missed a payment, contact your insurer immediately. You may be able to pay within the grace period and keep your policy. If your policy has been cancelled, ask if it can be reinstated.

Contact your state's department of motor vehicles (DMV)

If you've found a new insurer, contact your state's DMV to update your insurance information and confirm that your registration and driver's license are still valid.

Shop around for a new policy

If your previous company won't reinstate your policy, you'll need to find a new insurer. You may need to go with a non-standard insurer that specialises in high-risk drivers.

Expect higher rates

Having a cancelled policy on your record will cause other companies to see you as a higher risk, which will result in higher insurance rates.

Be aware of the consequences of driving without insurance

It is illegal to drive without insurance in nearly every state. If you are caught driving without insurance, you may face penalties including suspension or revocation of your driver's license and/or registration, confiscation of your license plate, points added to your driving record, impoundment of your vehicle, tickets, fines, or administrative fees.

How can you avoid having your insurance cancelled?

While it is unlikely that your insurance company will cancel your policy after a single accident, there are some steps you can take to avoid this outcome.

Firstly, be a safe driver. The best way to keep your insurance rates down and avoid cancellation is to maintain a clean driving record, free of accidents, DUIs, and other violations. If you do have an accident, be sure to notify your insurance company promptly and provide honest and accurate information.

Secondly, be mindful of the number of claims you file. Insurance companies may view multiple claims, especially liability claims where you are at fault, as a sign of high risk. If you can afford to cover the cost of minor accidents yourself, you may want to avoid filing a claim to reduce the chance of cancellation.

Additionally, it is important to stay on top of your insurance payments. Failure to pay your insurance premiums on time is a common reason for policy cancellation. Set up automatic reminders or payments to ensure you never miss a due date.

Finally, be honest and transparent with your insurance company. When applying for a policy, amending your coverage, or filing an accident report, always provide truthful and accurate information. Misrepresentation or fraud can lead to policy cancellation.

By following these steps, you can help reduce the likelihood of your insurance policy being cancelled.

What is the difference between cancellation and non-renewal?

Cancellation and non-renewal are two distinct outcomes that can occur when an insurance company decides to end a policy. Here is a detailed explanation of the differences between the two:

Cancellation

An insurance policy cancellation occurs when either the policyholder or the insurance company decides to terminate the policy before the end of its term. As the policyholder, you have the right to cancel your insurance coverage within your policy limits. However, insurance companies typically cannot cancel a policy that has been in force for more than 60 days, except for specific reasons. These reasons may include:

• Non-payment of premiums or default on payments
• Insurance fraud or misrepresentation on the application
• Revocation or suspension of the driver's license
• Conviction of a DUI or DWI
• Unregistered vehicles
• Failure to live in the insured home
• Ownership of an excluded pet, such as an aggressive dog breed
• Ownership of a trampoline or pool

If your insurance policy is cancelled, it may be challenging to find a new policy, especially if the cancellation was due to non-payment or fraud. A cancellation will also likely result in higher insurance rates when you do find a new policy.

Non-renewal

Non-renewal, on the other hand, occurs when the insurance company decides not to renew your policy at the end of its term. Non-renewal can happen through no fault of your own. For example, the insurance company may decide to reduce its number of customers in your area or discontinue a particular line of insurance. Insurance companies have more flexibility in issuing a non-renewal notice compared to a cancellation.

Non-renewal does not necessarily lead to higher insurance rates when you seek a new policy. However, if the non-renewal was due to increased risk exposure, such as committing fraud or having multiple accidents or claims, your premium may increase with a new insurer.

In both cases of cancellation and non-renewal, the insurance company is required by law to provide advance notice, typically between 10 to 60 days, along with an explanation for the termination.

What happens when you withdraw a car insurance claim?

It is unlikely that your insurance company will drop you after a no-fault accident. However, if you have made several car insurance claims recently, especially liability claims where you were at fault, your insurance company may raise your rates or drop you at the end of your policy term.

If you are considering withdrawing a car insurance claim, it is important to note that you can only withdraw a claim if you are not the at-fault party. If you are the at-fault party, you cannot withdraw the claim.

There are several reasons why someone might withdraw a car insurance claim. One reason is if the deductible-to-coverage ratio is not good. For example, if you need $1,000 worth of repairs but your deductible is $500, it may not be worth paying the deductible to only receive $500 in coverage. Another reason to withdraw a claim is if you cannot afford the deductible or a potential premium increase. In this case, you may choose to withdraw your claim and repair the damage later when you have more savings. It is important to note that if you choose this option, you will need to take steps to mitigate further damage caused by the issue, as your insurance company may not offer coverage in the future if the damage worsens. A third reason to withdraw a claim is if the repairs are not as costly as expected. For example, if you receive contractor estimates that are lower than expected and you can afford to pay for the repairs out of pocket, it may be a good idea to withdraw your claim. Finally, you may choose to withdraw your claim if the claims process is too difficult or convoluted.

When you withdraw a car insurance claim, it does not disappear entirely. The claim will still be filed in your insurance company's records and in the CLUE database for the next seven years. As a result, you may still see your insurance premiums increase if you need to file another claim in the future. However, withdrawing a claim is a relatively simple process and can usually be done with a quick phone call to your insurance company.

Frequently asked questions