Auto Insurance Cancellation: What Now?

If your auto insurance is cancelled, you will need to purchase a new policy to be able to drive legally. A coverage lapse can cause some insurers to view you as a high-risk driver, which may result in higher insurance rates. Before cancelling your auto insurance, it's important to check with your insurance agent and the DMV to ensure you comply with your state's insurance laws.

You may be seen as a high-risk driver

If your auto insurance is cancelled, you may be seen as a high-risk driver by other insurance providers. This classification can result in higher premiums, tougher restrictions, and fewer insurance options.

Being labelled a high-risk driver can occur for a number of reasons, including:

• Being a new or young driver
• Being involved in multiple minor traffic incidents
• Being involved in a major accident, such as drunk driving, speeding, or stunt driving
• Causing multiple accidents
• Having your licence suspended
• Accumulating several tickets for a range of offences

While there is no formal definition of a high-risk driver, insurers are generally hesitant to offer coverage to these individuals as they are considered a substantial financial risk. As a result, high-risk drivers often face challenges in obtaining affordable insurance and may have to pay higher premiums.

It's important to note that your status as a high-risk driver is not permanent. By practicing safe driving habits and maintaining a clean record, you can improve your standing over time.

Your car could be repossessed

If you have a financed car and your insurance is cancelled, your lender will likely require you to carry full-coverage insurance. If you don't, you violate your contract. The lienholder can legally cancel your auto loan and take back its vehicle through repossession if the company finds you driving with no insurance on a financed car.

If the lienholder learns you’re driving uninsured, the company can put force-placed insurance on your account. That’s not ideal, as the premiums for force-placed insurance can be very high and it's designed to protect your car loan provider, not you.

If you know your vehicle is going to be repossessed and have stopped driving the car, return your plates and call your insurance agent to cancel your policy. Keeping insurance coverage on a car you're not driving or don't own any longer is a waste of money.

You could face legal consequences

Driving without car insurance is illegal in all states (except New Hampshire and Virginia) and could result in penalties, including driver's license suspension, fines, and even jail time in some states. If you cause an accident while driving without insurance, you could be held responsible for paying out-of-pocket for any damages, including costly medical bills.

If you live in a tort, or at-fault, state, you will be responsible for all repairs and injuries you are deemed liable for and can be sued accordingly. If you live in a no-fault state, drivers pay for their own damages regardless of who is at fault in the accident and are restricted in their right to sue another driver. If you don’t have insurance, your own costs would have to be paid out of pocket.

Many states have sought to crack down on uninsured drivers with legal ramifications. If you get pulled over and cannot show proof of insurance, you could be hit with fines, penalties, and even jail time. Here are some examples of the consequences for driving without car insurance:

• Fine (first offense)
• Impoundment of your vehicle
• License and car registration suspension
• Loss of your driver’s license for one year
• Community service
• Jail for up to 15 days
• $250 surcharge on your license for three years

If your insurance cancels on a financed car, you may be at risk of the vehicle being repossessed. When you finance a car, you sign a contract agreeing to the lender's terms. When you don't uphold the terms, you void the contract. To reduce this risk, it is recommended to purchase another policy immediately and submit proof of insurance to your lender.

You may have to pay a cancellation fee

Cancellation fees are usually legal, but they are uncommon. If your auto insurance company does charge a cancellation fee, it will probably be less than $100. There are two types of cancellation fees: flat fees and short fees. A flat fee is a set amount, whereas a short fee is calculated based on how much of your policy is left when you cancel.

You can usually avoid a cancellation fee by waiting until your policy is about to expire or until the end of your policy, and choosing not to renew. Insurance companies can't charge a cancellation fee if you decide not to renew your policy. However, choosing not to renew a policy is not the same as cancelling it. Renewal means extending your policy after your current term expires, whereas cancellation means ending your policy before it expires.

If you cancel your policy without notifying your insurer, or you stop paying your premiums, you may be subject to extra fees or even a failure to cancel your policy. Insurers will continue to automatically withdraw payments from your account until you request cancellation.

You could lose your no-claims bonus

A no-claims bonus or discount (NCB) is a reward for not claiming on your car insurance. For every year you don't make a claim, your NCB increases, and you can build this up for a maximum of 15 years. The longer you go without claiming, the bigger your discount will be.

If your auto insurance is cancelled, you could lose your no-claims bonus. This will depend on the reason for the cancellation. If your insurance is cancelled because you didn't pay your premium on time, or because you made a fraudulent claim, for example, you could lose your NCB.

The impact of a cancelled policy on your no-claims bonus will vary depending on your insurer and your insurance policy. Some insurers offer protected no-claims bonuses, which allow customers to make a certain number of claims over a specified period without affecting their bonus.

If you lose your no-claims bonus, you may be considered a high-risk driver by insurance companies, and you may find it more difficult and expensive to get insured.

Frequently asked questions