Canceling an Auto Insurance Policy
If you ever need to cancel your insurance policy, you should follow a few simple steps:
Get in Touch With Your Carrier
First thing you should do is call or write your insurance company. Let them know you wish to cancel your policy with them and the effective date of that cancellation. Do not simply let your policy lapse or the insurance company will continue to bill you for coverage.
Every insurance company will have different cancellation procedures. Some might require you to formally end the policy by signing a cancellation form while others will be content with a letter or phone call.
Contact the DMV
You may need to let your state’s department of motor vehicles know about your cancellation. This will largely depend upon your state and you may also be required to surrender your license plates and tags. It’s important you follow your state’s financial responsibility laws. If you sell your vehicle or it is totaled, then obviously you’re no longer financially responsible. However, if you keep the vehicle, you should stay off the road until you have a new policy in place.
Let’s say you pay your insurance policy several months ahead of time but then your car is totaled and you cancel the policy after only two weeks. The insurance company should refund the remaining balance on your policy and will send you a check a short time later. If you ever cancel your policy, make sure you inquire about whether you are entitled to a refund.
Switching Auto Insurance Providers
If you find a provider with whom you can save money or are simply unhappy with your current insurance company, just follow a few simple steps and avoid costly mistakes or gaps in coverage.
Setting Up a Policy with a New Company
When you switch providers, the very first step is to make sure you’ve got the new policy completely squared away. Don’t do anything to your current policy until your first make sure you have been approved and made your first policy payment.
Also make sure you have a firm effective date in place. The ideal time to start your new policy is the day after your old policy ends. Don’t allow your coverage to overlap. Technically it’s not possible since you can’t collect twice on one claim but it is also likely to create problems for you and your insurance companies.
Cancelling Your Old Policy
The next step is to cancel your old policy. This is very important because you don’t want to pay unnecessarily for insurance coverage. Make sure you explicitly tell them verbally or in writing that you’re canceling your policy and when. As mentioned previously, it’s best to end your current policy the day before the new one begins.
It should be fairly easy to cancel your policy and the company may likely just terminate it over the phone. Some companies may have more formal procedures and might have you sign a simple cancellation form.
Finally, if you prepaid on your policy, it is likely you have a positive balance. Make sure you inquire about any refunds you may be owed.
Wrapping up Lingering Issues
It will entirely depend on your state but you may have to contact your department of motor vehicles about the provider change if your new carrier doesn’t do it for you. Also, if you have had a lien placed on your vehicle, you should update the lienholder with the change.
Proof of Insurance & Your Policy
Proof of insurance is some form of proof you carry with you to demonstrate you meet your state’s minimum liability insurance requirements.
Most insurance companies send you proof of insurance after you establish an insurance policy with them. Some states have electronic reporting whereby the insurance company contacts the state’s DMV directly. Nevertheless, even if you live in such a state, it’s still a wise decision to keep proof of insurance with you at all times.
Each state has its own set of liability minimums for which you must prove you can pay for any injuries or damage you cause in an accident.
While the most popular option is to carry an insurance policy, there are two other options you can explore:
- Cash Deposit – You can place a large cash deposit, typically between $25,000 and $100,000, with your state’s DMV or treasurer.
- Surety Bond – The other popular option is to secure a surety bond with a state-authorized surety company.
Electing one of these options means you will have to carry a certificate of your bond or deposit in your car at all times. This will serve as proof of financial responsibility.
When You Need Proof of Insurance and Consequences of Not Having It
You will need to provide proof of insurance or financial responsibility if you are in an accident or if you are pulled over and the police officer requests it. Also, a lot of states require proof of insurance when you register a vehicle.
Not having proper proof of insurance or financial responsibility with you can result in one or more penalties including fines, imprisonment, and registration and/or license suspension.
Keep in mind that if you do have your license or registration suspended, before you can have them reinstated you will need to provide proof of insurance or financial responsibility. In many states, you will often be required to submit an SR-22.
Can I Drive Without an Insurance Policy?
You cannot drive without insurance, ever.
Almost all states have liability insurance and all states have financial responsibility laws. This means that no matter what, you must have sufficient financial assets in case you cause an accident and you have to pay a claim. If you are not financially covered, then you will have to purchase auto insurance.
Auto insurance is designed to protect your property and assets. If you skimp on buying insurance and try to get by on as little as possible, you could be creating a potentially bad situation. Most insurance companies and consumer protection groups recommend you purchase at least $300,000 property damage liability and $100,000 bodily insurance liability coverage.
Many serious accidents far exceed a state’s minimum limits and you could end up in serious financial trouble if you do not have enough protection.
Trouble Switching Policies
There are several reasons you could be denied auto insurance coverage including a bad driving record; owning a special, high performance vehicle; being a novice driver with no to little insurance history; or you live in an area with high theft and vandalism.
In these cases, you can pursue two possible options:
State assigned risk pool
Insurance companies participate in state assigned risk pools according to a percentage of business they do in a state. Insurers must insure motorists assigned and the risk that comes with them. Premiums will be substantially higher than a normal policy but you will have coverage. If you need to find your state assigned risk pool then you should contact your insurance representative or your state insurance department.
Find a high-risk policy from an insurance company that covers high-risk drivers
Some insurers specialize in non-standard policies written specifically for drivers with poor records, high-performance vehicles, or residing in high-risk areas. Sometimes these policies are a better deal than state assigned risk pool policies. You may also be able to get more comprehensive coverage than basic liability. If you need a list of companies who sell non-standard insurance policies, you can contact your insurance agent or state insurance department.
How Much Coverage Do I Need on My Policy?
Nearly every state requires a minimum amount of liability insurance coverage.
You can usually guarantee you will need more than the minimum amount because accidents typically cost far more than that. If you are found legally responsible for more than your insurance covers, you could end up paying for the difference out of your pocket, which could easily wipe out your finances.
Make sure you speak with your insurance agent or company representative about retaining higher liability limits or consider an umbrella or excess liability policy, which will pay for costs when your basic coverage is exhausted. These policies usually cost only about $200 to $300 per year and you can have millions in coverage.
Make sure you always inquire with your current insurance company first about further coverage as it may be easier to go with a provider with whom you have an established history.
Beyond liability coverage, you can consider collision and comprehensive coverage. You won’t have a choice about how much you buy since your coverage will be based on the actual cash value of your car and the cost of repairing it.
Finally, you will have to decide on a deductible, which is how much you pay for a claim before you can collect the rest. Deductibles are usually $500 to $1000 and the higher your deductible, the lower your premium.
Policies Leased Car Auto Insurance
You will definitely need to insure any car you lease with your own policy. In fact, the car dealership or any financial institution will require you to buy both comprehensive and collision coverage in addition to other mandatory types of coverage.
- Collision coverage insures your vehicle from damage arising from collision with other vehicles, immovable objects, and often road hazards such as potholes.
- Comprehensive coverage, as the name suggests, is all-inclusive covering pretty much everything that can happen to your vehicle, other than an accident.
You may also be required to purchase GAP coverage.
Guaranteed Auto Protection or GAP insurance or loan/lease payoff coverage is essentially insurance that protects you from depreciation if your car is wrecked or totaled before you can pay off the loan. Since new vehicles depreciate dramatically in the first year you own one, if you are involved in an accident and your vehicle is damaged beyond repair (totaled) your insurance policy will only pay for the actual cash value (ACV) of the car. GAP insurance plugs this hole and may even cover your deductible as well.
When you lease a vehicle, GAP coverage is typically included in the lease payments. The car dealer usually purchases a GAP policy to cover all its cars and charges you a GAP waiver, which means if you total the car, you won’t have to pay the dealer for the gap amount.
You can also purchase GAP coverage for an auto loan as well. Since cars depreciate rapidly in the first year, you could end up paying a sizable gap payment if your vehicle is totaled before it is paid off. GAP coverage is not available in all states.
Cancellation and Non-renewal of Policies
There is a sizable difference between cancelling your auto policy and not renewing it.
Insurance companies can only cancel a policy that has been effective for more than 60 days except when you fail to pay your premium, commit fraud or misrepresent yourself, or have your driver’s license suspended or revoked.
When your policy is not renewed, you or your insurance company chooses not to renew it when it expires. How much time you’re given before your policy is dropped depends upon the state’s laws and the insurer must explain why they are ending it. If you believe the reason is not fair or need further clarification, you should call your insurance’s consumer affairs department. If you’re still not satisfied you should call your state insurance department.
In addition, your insurance company may simply choose not to renew certain policies based on your geographic location so it may not even be your fault. Conversely, if you are caught engaging in risky behavior such as drunken or reckless driving, your premium could go up or the policy could be not renewed.
Finally, if your policy is dropped that does not necessarily mean you will be charged a higher premium by another insurance company.