Why do car insurance companies drop coverage?
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UPDATED: Mar 13, 2020
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If you have recently been involved in an accident, received a number of traffic citations or been convicted of a DUI, you may find yourself facing non-renewal with your insurance company. Car insurance companies make a profit by receiving more money in premiums than they need to pay to cover insurance claims; in order to keep their costs down, they charge high premiums to those who are at high risk of filing claims. If a driver is viewed as being too high of a risk, an insurance company may refuse to cover him or her at all.
Why did my car insurance policy get canceled?
There are several reasons an insurance company may choose to drop an insured’s policy:
— If the insured partakes in any sort of insurance fraud
— If a driver has his license suspended
— If a person has been convicted of DUI
— If an insured files multiple small claims in a short time
There are many other reasons an insurance company may choose to drop a policy, and a company is not guaranteed to drop a policy due to any one of these factors. Any time an insurance company views a driver as posing too high of a risk, that company has the right to drop the insured person’s policy.
Whenever your policy is faced with cancellation or non-renewal, you will receive notification in the mail. The insurance company will advise you as to why your policy has been canceled and provide a number to call for any questions about the situation. If the cancellation was a mistake, you may be able to overturn their decision. In most cases, however, policies are canceled for justifiable reasons.
How do I buy new car insurance coverage?
Car insurance is a legal requirement, so if you have been dropped by your insurance company you will need to find another company to provide insurance. Depending on the situation, you may need to seek coverage from a high-risk insurance company. These companies are usually somewhat more expensive than other types of insurance, and may not have as many coverage options available.
Certain people carry what’s called an assigned risk policy. Assigned risk policies are designated for the drivers who are at the highest risk of being involved in an accident, either due to prior history of accidents or dangerous driving habits such as DUI convictions. Rather than being funded by a single insurance company, assigned risk policies are underwritten by multiple companies. Essentially, every insurance company shoulders a portion of the risk posed by these drivers and pays for claims filed on these assigned risk policies.
This means that if you have an assigned risk policy, the company that pays for your accident may not be the same as the company you deal with to file your claim. For example, you may have an Allstate agent and file your claim through an Allstate claims department, but the payment might come from Geico or Progressive.
Assigned risk policies are usually liability-only, meaning that they will only pay for damage that you cause to other people’s property, not to your own car. The only exception to this rule is if an assigned-risk policy is taken out on a vehicle with a lien holder. If you are still making payments on your car, you must carry full coverage to protect the lien holder’s interests.
Can I get cheaper car insurance rates on a new policy?
Whether you take a policy with a high-risk insurance provider or are given an assigned risk policy, you can begin to repair your insurance history by driving safely. Usually it takes up to seven years for a point against your license to drop off; this means that if you have an accident, DUI or other issue on your driving history, you could need as many as seven years of problem-free driving in order to counteract this damage.
The seven year rule is a maximum, however, not a minimum; many insurance companies have rates that begin to decrease after just one or two years of safe driving. If you are insured with a high-risk provider, you may be able to transition into a regular policy with the same company. This will lead to rate decreases over time.
In the short-term, you can make your insurance more affordable by raising your deductibles and lowering the limits of your liability coverage. Take care not to lower your limits too far, however, as if you are involved in an accident that causes more damage than the limits of liability on the policy, you will need to pay for this damage out of your own pocket.
You can also save money on car insurance by purchasing multiple types of insurance with a single provider and taking advantage of a bundle discount. You might also be able to take advantage of some discount programs; for example, you can take a defensive driving course or other advanced driver’s education class and receive a discount from some providers.
If you are interested in lowering your rates, you can contact your insurance company and see if there are any ways to reduce your premiums. Ultimately, your insurance will become more affordable after several years of safe driving, so the best thing you can do is focus on safe driving habits. Everything else will fall into place with time.