What is the difference between cancellation and non-renewal of an auto policy?

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What is the difference between cancellation and non-renewal of an auto policy?

The terms cancellation and non-renewal are often used interchangeably, but these terms have very different meanings when it comes to your auto insurance. Both mean you will ultimately no longer have auto insurance with the carrier sending that notice, but there are different reasons and issues associated with each.

What is a cancellation?

A cancellation happens in the middle of your policy period and can only happen for very specific reasons:

  • You have failed to pay the premium
  • You have committed fraud or made misrepresentations on your insurance application
  • Your driver’s license has been suspended or revoked
  • Other unusual or extenuating circumstances that might warrant a cancellation (such as a felony conviction)

The most common reason for a cancellation is non-payment of your policy premium. When your payment is late, your insurance company will typically send you a notice of intent to cancel your policy with a cancellation date on it. If the payment is not received by the date on that notice, your policy will be cancelled and the Department of Motor Vehicles (DMV) will be notified that you are no longer insured. You may or may not, based on your driving record and previous payment history, be able to convince your insurance company to reinstate your policy. If they will not reinstate, you’ll have to find coverage with another company.

The other reason you might be cancelled mid-term is because of a misrepresentation on your application. It is incredibly important for you to be upfront and honest about your driving history and legal driving status. Your insurer will need to know if you’ve ever had a DUI/DWI, suspension, or other major moving violation(s). The company does have the right to cancel your policy, within a certain period of time, if they find you lied on your application.

Having a policy cancelled means that it will be harder to find new insurance.  Companies will take a closer look at your credit and driving histories and you can expect to pay higher premiums. Having a policy canceled is extremely bad, from the insurance point of view, because it indicates that at least one insurance company no longer thinks you are worth the risk.

What is a non-renewal?

A non-renewal isn’t as harsh as a cancellation. Either you or your insurance company can decide not to renew the policy when it expires.  Non-renewals are often issued because the insurance company no longer wants your business… but it isn’t personal. Depending on the state in which you live, non-renewal notices are issued within 30-60 days of a policy renewal date and include an explanation as to why the company is not renewing.  You have plenty of time to find new coverage.

There are several reasons an insurance company may choose not to renew your policy.  The company may have decided to drop that particular line of insurance or not write policies where you live any longer.  Some states simply allow insurance companies to non-renew a small percentage of their business for what seems like no reason at all – like having too many customers in one geographic area. This has nothing to do with you at all and should not impact your ability to get a policy and good rates with another company.

Lastly, changes to your driving record may be a reason your policy is not renewed. While minor accidents and moving violations usually result, at worst, in an increase in premium, major incidents and/or multiple incidents may prompt your company to drop you as a customer.

If your insurance company did not renew your policy, you will not necessarily be charged a higher premium at another insurance company.  Regardless of the type of notice you receive, prompt action is important so that you do not have an insurance gap.

Contact Foundation Insurance Group

The insurance professionals at Foundation Insurance Group, located in Falls Church, Virginia and serving the Washington, D.C. metro area, and St Matthews, Kentucky, serving the greater Louisville area are always available to review and discuss your current auto insurance policy and help you get the best protection available at a cost you can afford. Talk to your agent about finding new insurance right away. The longer you wait, the more difficult it may be to find a reasonably priced policy before your existing policy term ends.

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