Why Did I Get a Car Insurance Cancellation Letter?

Auto insurance is not only nice to have; it is required in all but a few states. If you are caught driving without it, you may face steep fines, impoundment, and possibly even jail time.

If you've had a few problems or haven't been making your payments on time, your insurer may send you a letter stating that your policy is being canceled. When you receive an insurance cancellation letter, here's what it means (and what you can do about it).

Why Your Policy Is Being Canceled

An insurer is unlikely to cancel a policy without good reason. Carriers have the right to cancel policies at any time during the first 60 days. They won't be able to do so after that unless certain conditions are met. It can generally only be canceled after the first 60 days if:

• You missed your monthly payments and have yet to make them up despite being notified.
• During the application process, you lied about yourself.
• Your license has been canceled, suspended, or revoked for reasons unknown to the carrier.

These are the three most common reasons for canceling an auto policy. In some states, health issues can cause your insurance company to drop your coverage. In Illinois, for example, a policy can be canceled if the driver is diagnosed with epilepsy. The driver's doctor would have to provide proof that the condition would not impair the driver's ability to drive.

Cancellation vs. Nonrenewal

One critical distinction to make is the distinction between cancellation and nonrenewal. Cancellation occurs during the policy term.

Nonrenewal, on the other hand, occurs at the end of one policy period and before the start of a new one. Because the change occurs between policy periods, the nonrenewal rules are less stringent. It's possible that a nonrenewal was not due to you or your driving. For example, a company may decide not to cover an entire region.

If you live in that area, your agent will notify you. You'll have enough time before the cancellation date to find a new policy.

Many of the reasons for nonrenewal are related to your driving. A DUI or too many traffic tickets may cause your policy to be reviewed. A carrier may refuse to renew your policy if you have made too many recent claims.

Your provider must notify you of the cancellation of your policy and explain why. The timeline, or how much notice is required, is determined by the state in which you live.

What to Do If You Receive a Cancellation Warning

A cancellation letter should not be unexpected. Because the reasons for canceling a policy are fairly extreme, it will not happen without your knowledge. Before they open a notice, drivers should have a good idea of why their policy is being canceled. Most likely, the carrier has already contacted the driver and given him time to resolve the issue.

If you fall behind on your payments, for example, you will almost always have a grace period to catch up. Similarly, if your license has been revoked, your provider may give you time to reinstate it before canceling your policy. You might not always be able to fix the problem, but it's worth a shot.

The Bottom Line

To maintain your current policy, you should act quickly to correct any issues. If you are unable to resolve any of the issues, you must find a policy as soon as possible to avoid a gap.

Driving without insurance can lead to a slew of issues. You will be held financially liable for any damages caused by a collision. In some states, you may face legal consequences such as fines or incarceration.

States require insurance companies to notify the DMV when a policy is canceled. If this happens and you haven't taken action to avoid a coverage gap, your state may revoke your car's license or otherwise prevent you from driving.

It's also critical to restore coverage as soon as possible because a long gap in coverage usually results in higher premiums.