Imagine this: Your insurance agent calls and informs you that your auto insurance policy is being canceled, offering no further explanation.
The first question that pops into your mind is, “Can they actually do this?”
First the bad news: During the so-called “binding period,” which is typically the first 30 to 60 days of your policy, depending on your state laws, your insurer is free to cancel at will, without offering an explanation. This period allows the insurer to investigate the accuracy of your application and decide if they want to accept you as a risk.
The most common reason for a cancellation during the binding period is due to underwriting, says Kristofer Kirchen, president of Advanced Insurance Managers in Tampa, Florida. “Discovering an undisclosed driver, failure to provide requested information and vehicles that do not meet coverage requirements are common,” says Kirchen.
Now the good news: Once the binding period has passed, your insurer can cancel only for valid reasons. Those vary by state, but common ones include nonpayment, fraud or suspension of your license.
Regardless of whether you compare car insurance quotes now or renew your current policy, you have rights when it comes to car insurance.
What your car insurance company can’t do
Most people know that you cannot be denied a policy due to your gender, ethnicity or religion. Though specifics can vary by state, beyond these basics, there are other things you should never hear from a car insurance company. Here are 10 things your insurer should never say to you.
1. We are denying your application but are not going to tell you why.
Most states require insurers to explain why they are denying an application or non-renewing a policy. If you feel the decision is based on incorrect information, you have the right to review your application and to make corrections and appeal the decision.
2. You cannot cancel your policy until the renewal date.
You can compare car insurance quotes and shop for insurance at any time and are entitled to a refund of any unused premium. However, insurers do have the right to charge a penalty if you cancel before the expiration date. Nonetheless, it’s quite an easy process if you want to switch car insurance companies.
3. You cannot change your coverage or policy limits until the renewal date.
You can change your policy limits or coverages at any time, and if the changes result in a lower premium, you are entitled to a refund.
4. We are cancelling your policy and not giving you any notice.
Required notice will vary by state but your insurer must give you written notice of a cancellation or non-renewal and the reason why. For instance, Texas requires 10 days’ notice, while Massachusetts gives you 20 days. If you feel the cancellation is based on inaccurate information, you have the right to appeal.
If you experience a cancellation, look for a new policy immediately.
“A lapse of just one day can result in a penalty, and a lapse will typically cause your rates to go up,” says Penny Gusner, consumer analyst with Insure.com.
5. We cannot insure you because you have been denied by another insurance company.
Insurers can look at a variety of factors when evaluating your application, but they cannot deny coverage based on the fact that you have been denied by another insurer.
6. We cannot insure you because you purchased from an assigned-risk plan.
The vast majority of high-risk drivers do not have to resort to assigned-risk plans, the last-resort insurance for drivers unable to find coverage on the open market. But because every state requires some kind of liability coverage for all drivers, insurers in those states agree to share the burden of these highest-risk clients. But they cannot deny you a policy later on because you were previously insured by an assigned high-risk plan.
7. We cannot sell you a policy because you have a low credit rating.
While insurers in most states consider a credit-based insurance score when setting your rates, they cannot deny coverage based solely on your bad credit.
8. We cannot sell you a policy because you are not paying in full.
Most insurers offer a small discount if you pay the policy in full, but they cannot require it. You have the right to pay for your insurance in installments. Insurers are allowed to charge a fee for each installment. (One exception is if you have SR-22 insurance that requires an SR-22 form, which is a form that your car insurance company must file with the state to show that you have obtained — and will maintain — certain auto insurance coverages.)
9. We don’t like something on your driving record but won’t tell you about it.
Insurers consider many factors when calculating your car insurance rate, and your driving record is chief among them. However, insurers have to give you an explanation of how your DMV record affects their decision.