What happens if your auto insurance is cancelled?

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Here's what you need to know...

Auto insurance is something that you’re required to carry by law. Not only do you have to purchase a minimum amount of coverage, but you also have to maintain the coverage for as long you own the car.

If you do not have coverage while the car is registered in your name, you put yourself and others at risk. As you shop for insurance, it is important to build a policy that you can afford to pay for.

If you can’t make your regular payments, allowing your policy to cancel can result in severe penalties and stiff fines. It’s best to know what can happen if your insurance cancels before it ever gets to this point.

Shop around for insurance you can afford. You can start today by entering your zip code in our FREE tool above!

Auto Insurance is a State Requirement in Most States

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Unlike other forms of insurance, you’re required under state law to buy a minimum amount of coverage. Liability coverage is required in tort states, and Personal Injury Protection coverage is required in no-fault states with compulsory auto insurance laws.

If you don’t buy the minimum coverage that’s required by the state, you’re violating the law. While auto insurance is mandatory in most states, there are always exceptions to the rule.

In states like Montana, Hawaii, Virginia, New Hampshire, and Washington, you can legally drive without insurance if you pay an uninsured motorist fee.

Remember that there are still consequences for driving without insurance in states without compulsory insurance laws.

When can an insurance company cancel an auto insurance policy midterm?

Auto insurance companies must comply with the regulations that are set by the Department of Insurance when it comes to canceling insurance policies.

State regulators protect consumers by limiting when insurers can cancel policies in the middle of an insurance term. Some of these reasons include:

  • Non-payment of premiums
  • Filing a fraudulent claim
  • Material misrepresentation on your application
  • License revocation
  • Registration suspension

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Are there restrictions for policy cancellations when the policy is renewing?

When you buy insurance for six months or twelve months at a time, the insurance company is limited in its ability to cancel your coverage after the policy has passed an initial 60-day binding period.

The restrictions only apply to mid-term cancellations and not cancellations being processed at renewal.

When an insurance company decides not to renew your policy, the coverage will expire at 12:01 on the term expiration date. In the industry, this is called a nonrenewal.

While insurance companies are required to notify of a nonrenewal in advance, they are free to make the decision for any reason.

Typically, you must get 30 to 45 days notice to look for new coverage.

Will you be penalized if you don’t get new coverage after a policy cancellation?

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State auto insurance laws pertain to all vehicles registered to be driven on public roads. The law says that you must present proof of insurance when you register your car and keep that insurance active for as long as the car is registered.

If you turn in your license plates and don’t intend on driving your car, you don’t need to comply with the law.

If, however, you do have a valid registration, you can’t let your insurance lapse at any time. As soon as the coverage lapses, you are guilty of a misdemeanor offense.

If you’re caught driving without insurance, you can face stiff penalties, but there are severe consequences for uninsured drivers who aren’t caught as well. Here are some consequences:

  • Fines for being convicted of driving without insurance after being cited
  • Mandatory vehicle impound for up to 30 days
  • Vehicle impound and storage fees
  • Mandatory court appearances and community service
  • Suspension of registration and reinstatement fees
  • Loss of your driving privilege
  • SR-22 filing requirements
  • A sentence of up to 6 months in jail for multiple offenses
  • Increased insurance costs for falling into a high-risk driver class
  • Loss of prior insurance and loyalty discounts on insurance premiums

How does the state know when you don’t have insurance?

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In the past, uninsured drivers could get away with violating vehicle codes because they didn’t get penalized unless they were caught by law enforcement. Now, drivers aren’t so lucky.

While officers do still ask for proof of insurance, they can verify whether or not your insurance is active before they even get out of the patrol car.

Most states have invested in electronic verification systems. These systems make it possible for officers and DMV agents to verify coverage real time to see if a policy is active.

As soon as the policy cancels, the insurer will update the system, and the state will be notified. Presenting expired auto insurance ID cards no longer works.

What happens after the state is notified?

If your coverage lapses, the state will receive an electronic notice. Once the notice is received, the state will ask you to provide proof that you are insured.

If you have a gap in coverage, or you don’t have coverage at all, the state will suspend your registration until you buy insurance and pay a reinstatement fee.

Having an accident while your policy is canceled is a worst-case scenario. If you currently don’t have coverage, it’s time to shop around.

Use an online insurance quote comparison tool and find the best rates. Even a basic policy can save you from having to pay the price for being uninsured. Enter your zip code in our FREE comparison tool to get the best rates!

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