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UPDATED: Mar 13, 2020
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Whenever a person purchases a car insurance policy they agree to the terms of the policy. In this way, a policy works as a contractual agreement between the insured and the insurance provider. Whenever specified events occur, such as a car accident, agreed-upon responses follow, such as a claims settlement check. If the agreed-upon response is not followed, the contract has been broken and consequences follow. For example, if an insurance company does not pay the settlement that is owed, the customer can sue for that money. Other behaviors agreed to when a person purchases a policy include:
- The policyholder agrees to pay the bill on time
- Agrees to notify the insurance company of any accidents
- Only insure vehicles that he owns or has financial interest in
- Allow only authorized drivers to operate the vehicle
- Accurately and honestly describe any events leading to a claim
- Behave in legal and consistent ways with the agreed-upon usage of the vehicle
If at any time a policyholder fails to uphold his end of the contractual agreement, his policy may be canceled. Sometimes a car insurance company will cancel a policy immediately after a claim if the claim’s investigation showed fraud or illegal behavior; other times, the insurance company will wait to the end of the policy term and then refuse to renew the policy. In either case, the company will issue a letter of explanation to the insured person stating why the policy was canceled. Although there are many reasons why an insurance policy might be canceled, some reasons are more common than others:
Whether the insured pays for premiums at the start of the term or through smaller monthly premiums, a missed payment can cause a lapse in coverage. If the payment is not remitted quickly, the insurance company will cancel the policy permanently. In order to avoid this, it’s best to contact the insurance company as soon as you realize you might be late in making a payment. Through communication, the insurer may be able to provide an extension.
Fraud is a criminal offense, so people guilty of committing it may face legal action in addition to canceled policies. Any purposeful misrepresentation of facts can be considered insurance fraud. Some of the most common include manipulating dates of accidents, providing false loss details or purposely causing damage to your own property in order to get the insurance money. Other types of fraud are more subtle, such as insuring a vehicle at another person’s address to take advantage of lower rates. Any time an insurance company suspects fraud, a special investigations unit (SIU) will conduct a thorough investigation.
Risky driving activity
If a person uses his vehicle recklessly, he may lose the insurance on that vehicle. This is especially true if a claim is filed for damage occurring to the vehicle after an illegal or dangerous activity took place. For example, accidents caused by driving under the influence of alcohol or drugs will often lead to policy cancellations. The same is true of people who use their vehicles for street racing.
Inappropriate vehicle usage
Car insurance companies determine the cost of premiums based on the risk the vehicle has of being involved in an accident. Vehicles that are driven frequently or put under stress are more likely to crash than those that are driven infrequently and safely. If you’re found to be using your vehicle in a way not consistent with what’s described on the policy, you may face a cancellation or even fraud charges depending on the situation. For example, if you rent your vehicle out to a friend, that may violate your policy.
The easiest way to avoid a policy cancellation is by being up-front and honest with your insurance company. If you do find your policy canceled, you need to purchase insurance coverage again quickly in order to avoid legal trouble with the local DMV. You can begin searching for new insurance by getting a quote online, but be advised that your premiums may be somewhat higher if your last insurance company canceled the policy.