Insurance companies are like fair-weather friends: They’ll drop you if you lie to them, owe them money or drink too much.
As a general rule, car insurance companies do not have the right to arbitrarily cancel your policy. However, most states define the reasons an insurer can cancel you before your policy period is over. And an insurer can decide not to renew your policy at the end of each insurance period.
The Insurance Information Institute (III) says that while the majority of policies are renewed, some flubs can land you in hot water.
“A lot of consumers are surprised to learn that their insurance company has the right to dump them because they don’t realize that an insurance contract involves a reciprocal relationship,” says Michael Barry, an III spokesperson.
In some states, car insurance companies must disclose the reason for nonrenewal. In others, the company can simply walk away from you without sharing any reasons. (Insurers generally need to cite a reason when they cancel you, Barry says.)
Here are five activities that can make your car insurance company boot you from its customer list.
There are a few circumstances under which your car insurance company is allowed to immediately cancel your policy. Failing to pay your premium, lying on your application or having your license suspended are all grounds for cancelation.
A DUI or DWI conviction will not necessarily lead to cancellation of your auto insurance, Barry says. But an insurer is likely to decide not to renew your policy. If you can find a new insurance company, you’ll likely face a significant price increase and your policy might be limited to the state-required liability minimums.
“Sometimes drivers can keep their car insurance after a DUI, but it depends on whether it is a first-time offense, whether there was an injury to a person or to property and whether there are any extenuating circumstances,” says Barry.
Mario Morales, manager of corporate underwriting for MetLife, says that drunk driving generally has a substantial impact on car insurance.
“Not only is drunk driving an egregious offense, but the underlying issue is poor judgment, which is of concern to an insurance company,” says Morales.
Lying to avoid a price increase
“Rate evasion” involves providing inaccurate information to the insurance company. Factors that affect car insurance renewal may include:
• Inaccurate information about where your car is located (e.g. in an urban area versus a rural area, or parked on the street versus parked in a garage).
• Unlisted drivers (e.g. leaving teenage drivers off the policy).
• Misrepresenting the number of miles driven annually.
Morales says car insurance companies take rate evasion extremely seriously, since they base premiums on accurate information.
“We look at rate evasion as an indication of the integrity of the customer, so it makes us question whether there will be other issues with that customer in the future,” says Morales.
Having one accident – whether it’s your fault or another driver’s – is not likely to trigger a nonrenewal. But a trail of tickets or accidents will make your insurance company take notice.
“Each insurance company has rating criteria for customers, so you may find that one company will choose not to renew someone after a few tickets while another will be more lenient,” says Barry.
In most cases, a decision not to renew is based on cumulative information, Barry says. This might include several moving violations “that demonstrate recklessness” – such as speeding, running a red light or going around a school bus, he says.
Insurance companies review both at-fault and not-at-fault accidents as well as moving violations because they could reveal a pattern of driving habits that could lead to another accident, Morales says.
Instead of nonrenewing you, an insurer could force you to exclude the bad drivers from coverage or refuse to sell you collision coverage, says Morales.
Not paying car insurance bills
Car insurance companies may give you a limited grace period during which they will continue coverage even if you are tardy in paying, Barry says. Eventually, they will give you a date to pay up or lose your coverage.
“A cancellation for non-payment can occur at any time after delinquency notices have been sent that request payment by a specific date,” says Morales.
Insurance companies can cancel policies under these circumstances because the decision “is driven by the customer not meeting their obligations,” Morales says.
Grace periods vary by state, according to Morales.
Filing too many insurance claims
Have you made a lot of small claims? Don’t be surprised if your insurance company contacts you to have a little chat.
“The insurance company may suggest an increase in the deductible as a condition of renewing the auto insurance policy to see if this changes the policyholders’ behavior,” says Morales.
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