Is car insurance auto renewal legal?

Auto insurance renewal is legal if you authorize your insurer to renew your policy automatically. Save $50 to $100 annually by allowing automatic payments.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Jul 15, 2021

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Things to remember...

  • Auto-renewal is offered by many auto insurance companies
  • It is a way to get coverage immediately and to stay covered without having to remember to pay
  • Make sure you know the renewal dates to avoid misunderstandings or a lapse in policies

When shopping for auto insurance, some people wonder about auto-renewal. In fact, this issue is not unique to the insurance industry.

Auto-renewals are a problem for many different types of businesses.

Consumers sometimes forget that they took out an auto-renewal; then they complain that the company deducted the funds illegally.

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Auto-Renewal Issues


Some of the problems with auto-renewals include:

  • Forgetting about your agreement – One problem that can occur with an auto-renewal is that you may forget you signed up for it. If you do not keep careful records of when expenses will be deducted, you may find yourself lacking in funds due to the unexpected withdrawal, which causes some customers to be upset with the insurance company and to cancel their policies.
  • Failing to have sufficient funds to cover the withdrawal – Another problem that occurs with automatic renewal is that the amount may be substantial if you renew annually, creating a significant headache for consumers who had forgotten when it was supposed to renew. Again, keeping careful records of when expenses come out is important.
  • Duplicate coverage – When someone drops a previous coverage and then starts a new policy but fails to inform the former insurance company, they may not know you want to cancel in time to keep the auto-renewal from taking place. Thus, in some cases, duplicate coverage can result.
  • Failure to have claims paid due to lapse – If you are caught between a lapsed period due to having insufficient funds, you will not be covered during this period. If you have an accident during the time you were uncovered, the insurance will not pay your claim.

According to, complaints are often recorded with insurance providers that deal with disgruntled customers who are unhappy with the way an insurer handled an auto-renewal.

But keep in mind that, once you agree to an auto-renewal — whether in real life or online — you have a financial and legal responsibility to fulfill on your end.

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Advantages and Discounts for Auto-Renewal


Remember that insurance companies often provide a discount to consumers who agree to allow their payments to renew automatically. You can sometimes save hundreds of dollars by agreeing to this with certain companies online.

But you have to remember when the deduction is set to occur and remind yourself so that the funds will be available.

Regardless of the number of consumer complaints that are fielded weekly among insurance providers concerning auto-renewal, there is nothing illegal about it.

Like any agreement, you must abide by the contract that you signed.

It’s a Contract

With digital online services so prevalent today, it is sometimes easy to forget that you are signing a legally binding contract when you agree to purchase insurance or to sign an auto-renewal agreement.

Even though it is not done in a traditional manner with pen and paper, your digital signature carries just as much legal and financial jurisdiction as if you signed it with pen and paper.

So there is nothing illegal about this process.

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When It Would Be Illegal

There are only one or two situations in which an auto-renewal would be considered illegal — that is if you did not agree to have the funds deducted at a particular time each month/annually and the company did it anyway.

This instance is often referred to as “slamming,” wherein a salesperson sells you a policy without your permission, assumes a sale you did not agree to, or otherwise thwarts the legal process that you are entitled to through the FTC (Federal Trade Commission).

Another case that might be considered illegal on the part of an insurance company is when they failed to honor your policy or your claim when you paid the premium through auto-renewal.

As long as the funds were available at the time of renewal, a company cannot later argue that you did not have the funds when they deducted your premium.

Otherwise, they would deny coverage falsely, which is considered fraud.

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Insurance Regulations


The insurance industry has very strict regulations regarding the conduct of insurance agents, and they are not allowed to misuse or abuse their position.

If you suspect that you have been a victim of this, you can go to your state insurance website and report the incident. See also the state map link we gave you at the beginning of this article.

Also, you may need legal assistance if you were denied a claim due to an auto-renewal that a company failed to honor.

Remember that most mistakes happen honestly. Most insurance companies realize the importance of honoring claims and policies. They understand the importance of your coverage being intact and will try to work with you should your premium not be paid.

Most consumers also know that they must have the funds available at the time of the deduction and are responsible for making sure the premiums are paid on time.

The best rule of thumb is to communicate both at the beginning of a policy and throughout. Clear communication and understanding of the policy, as well as the payment rules, will avoid unneeded misunderstandings, cancellations, and legal issues.

Remember also that an insurance company cannot just cancel your policy automatically, but your car insurance may renew automatically. They must give you a 30-day warning from the time that your payment failed to post to your account until they cancel.

This state law is virtually in every state that requires insurance. Again, check with your state insurance site such as this one for Arizona residents to find out where you stand with the state insurance regulations.

Shop and Compare

The best line of defense against misunderstandings regarding auto-renewal is to shop around and compare before you buy a policy.

Feel free to ask questions of your insurance companies that you are considering and ask them about auto-renewal.

Find out how often it will renew, how much money you may save using this feature, and the exact date of renewal.

Knowing this information at the front end will save you a lot of headaches later on. Most companies do not require auto-renewal to join, but it makes your coverage start more quickly and may also save you money on your policy.

To save the most money that you can on car insurance, compare car insurance rates for FREE!

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