We’ve explored some of the most common reasons car insurance policies are canceled: things like failing to pay the premium, fraud, making unapproved modifications that change the value and functionality of your car, having your license suspended or revoked, and major moving violations (especially DUIs or DWIs). But here we’ll explore some of the ways drivers end up getting dropped from their insurance policies that have nothing to do with their driving records — or anything they’ve done.
Finding yourself stuck without auto insurance coverage is against the law (if you’re still driving) and potentially financially ruinous if you are involved in a crash. Plus, when you do find an insurance company, the gap in your coverage will almost always mean a higher premium. So avail yourself of the following scenarios and do your research. And it’s never a bad idea to do a little insurance shopping so you have a backup in mind, just in case. (Before you apply, be sure you know where your credit stands, as it could affect your rate. You can view two of your scores, updated each month, for free on Credit.com.)
1. Health issues
Several states have laws on the books stating that car insurance companies can drop customers who develop health problems that could make driving unsafe. For instance, epilepsy, a condition that causes seizures, is a medical issue for which many states permit insurers to drop customers, unless they can prove the condition won’t affect their driving. But luckily it isn’t a straight line from diagnosis to loss of insurance. The Zebra’s insurance expert, Neil Richardson, explains:
Epilepsy and serious illnesses become an insurance issue only after they have become a driver’s license issue. If your doctor notifies the DMV or court that you are not fit to drive due to a medical issue, then your license can become suspended until the doctor updates your status or you dispute the doctor by filing an appeal with the DMV. Your insurance company then drops you because of your license status, not for a specific health reason.
Technically, says Richardson, any health problem that doctors deem serious enough to make them revoke driving privileges could lead to loss of coverage (but then, you can’t drive without a license, so the loss of insurance coverage becomes moot). Some possible examples of illnesses that might put your insurance coverage in jeopardy are unstable diabetes, heart conditions, arthritis, chronic depression, substance addictions or aggression. Some illnesses and conditions will only require a license restriction (like no driving at night or the required use of corrective lenses). If you develop a serious illness or medical condition, keep in mind that it could become a license and insurance issue.
And what if you develop a medical condition that could be deemed serious enough for a doctor to revoke privileges but your doctor doesn’t? Can you find yourself with a retroactively canceled policy in the event you need to make a claim? Richardson says that if your doctor doesn’t give notice to the DMV or the courts, the insurance company wouldn’t have a leg to stand on if they tried to deny a claim. Further, insurance companies might cancel policies upon notification of a change in license status, but only if there is a driving restriction in place. “It’s just part of the risk that insurance companies assume when they write a policy,” Richardson says.
As always, if you develop a health issue and worry it’ll cause you to be dropped, you should still tell your insurer if you’re a current policyholder, rather than trying to hide the truth. And if you’re shopping for new insurance, you must tell potential insurers, or risk your policy being voided. If you get into a wreck or need to make a policy claim for any reason and your insurer does a little digging and discovers your secret, they most likely won’t pay and you’ll be left uncovered anyway. Better to know before an emergency and make a plan of action.
2. Making multiple claims in a short period
Even if you’re the victim of crime or experience an extreme weather event and need to make a claim, it can spell trouble for your insurance policy. It might not seem fair, but the auto insurance industry is built on calculating risk, and making too many claims is a good way to up your chances of having your policy canceled or not renewed. Richardson says that claims, just like tickets and crashes, stay on your driving record for three years. Filing more than one claim a year could cause your insurance company to drop you. So, say your vehicle is vandalized a few times, or stolen, or your vehicle is carried away by a flood, you’ll make a claim with your insurer, and rightfully so, but making too many claims (of any type) can make you too expensive of a customer to keep around.
Keep in mind: There is an important distinction between a canceled policy and a policy non-renewal. The former causes your coverage to end immediately, even if your policy term isn’t up, while the latter means you can finish out your term with your current insurance company but will need to find a new one at the end (usually six to 12 months). In most cases, when too many claims are filed in a short period, insurers will opt for non-renewal of your policy, rather than suddenly canceling it. It’s not a great situation to be in, but it’s relatively better than being dropped.
If you’ve been dropped from your current insurance, it’s important to find a new policy as soon as possible, and if you know your policy won’t be renewed, you should start shopping around for a new policy as soon as you can.
3. Your auto insurance company shuts down in your area
This scenario is a definite case of “it’s not you, it’s me.” Businesses fail all the time, and auto insurance companies are not immune. Even subsidiaries of national brands can shutter, leaving part (or all) of your insurance portfolio up in the air. Fortunately, there are steps you can take to reduce the chance of signing on with an insurer that is more likely to fail.
Check out their rating: A.M. Best ratings, J.D. Power ratings and J.D. Power’s claims satisfaction survey are all good places to start. Good ratings show financial strength and business staying power.
Only purchase insurance from licensed companies and agents — not only will you ensure the company meets your state’s financial requirements, you’ll be certain a guaranty association is available to pay outstanding claims in the event the business fails.
Look at your state’s auto insurance complaint index, which compares complaints across different insurers so you can see where each company falls on the spectrum.
Get help from your state’s department of insurance help line or website. You can learn about license status, financial ratings and complaint history — all important factors when choosing an insurer.
Auto insurance companies can’t drop customers without cause (except during a new customer’s trial period, which usually lasts 60 days from first sign-up), so if you think you may have been illegally dropped from your auto insurance, check out your state’s laws with their department of insurance.