A Cancelled Car Insurance Policy: Are You at Risk?

Some surprising things can render your car insurance policy useless—read on to can avoid finding yourself in a lurch.

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We’ve heard the stories: Just last month, a minister almost had her car insurance voided for Jesus-themed bumper stickers. Her carrier threatened cancellation, citing the unreported modifications (adding the many large stickers) the minister made to her car. The company ultimately relented, admitting their contract wording was ambiguous (though media attention and accusations of religious discrimination may have had something to do with the decision). You may have heard of a family member or a colleague whose car insurance policy was canceled, seemingly out of the blue, and you’re still not quite sure why. It’s a nagging fear in the backs of our minds: what if something we do, or forget to do, will void our policy? And, how does a car insurance policy get cancelled, and why?

It’s important to remember that there are hundreds of insurance carriers in the US, and they’re all private companies and with their own set of regulations, so you want to be sure you understand your company’s individual policies. That said, there are a few broad categories of reasons that’ll cause many insurance companies to cancel a customer’s policy. Quoted compiled these red-flag events and behaviors because being proactive may prevent you from losing your policy.

Voided Policy, Defined:

First, let’s get the lingo straight. Sometimes an insurance company will decide not to renew a customer’s policy, called a nonrenewal. In this case, the insurance will last until the agreed-upon policy term ends, and then it will not be renewed. A hassle, but not the same as a voided policy. A voided policy happens when your carrier calls you up, tells you that, effective immediately, you are no longer covered, and all of a sudden you’re without insurance. Tough stuff, for sure. So why does it happen, and what can you do to prevent it?

Driver-caused cancellation:

First, the most obvious reason: lack of payment. If you don’t pay your premium, and you don’t communicate with your carrier to work out a payment plan, your policy will eventually be canceled. But though it’s not an ideal situation, it probably doesn’t come as a surprise to most people.

In less obvious news, policies can also be canceled if fraud is discovered. Car insurance fraud happens when a customer misrepresents information for their own financial gain. Fraud can range from providing incorrect information while getting a quote to staging a car accident, and it won’t matter if you, the fraudster, knows you were committing fraud or not—you’ll still be held responsible if discovered. Taking a few minutes to look closely at your carrier’s definition of fraud (and then not doing those things) could save you a whole lot of heartache.

Knowing your carrier's definition of fraud could save you a whole lot of heartache.

Also, if your license is revoked, or if you’re convicted of a major moving violation, your policy may be canceled. It’s not a definite, but you’ll need to check. Some carriers will cancel the policies of drivers who have a high number of accidents as well. And, if you have health issues that are known to impair driving abilities, be sure to call your agent to see what their rules are—in some cases, a note from a doctor stating that you personally aren’t an impaired driver will keep your policy active. Remember that in all of these situations, if you don’t tell your insurer, and then need to make a claim, there’s a good chance you’ll be denied and your policy will be canceled. Ignorance is not bliss.

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Modification-caused cancellation:

While you may think your extra-high roof or custom rims up your car’s cool factor, most insurance carriers don’t share your love of individuality. If you handle car modifications up front, you may be able to add coverage to your existing policy. But keep changes a secret (or, more likely, put calling your carrier about them at the bottom of your to-do list and keep it there), and you could find yourself without coverage in the event of an accident or theft.

What qualifies as a modification?

Any change you make to your car that increases its value, or increases its power or performance (read: increase the chances of an accident, in your insurer’s eyes), is something you’ll want to discuss with your carrier at the time of the modification, not just when your policy is up for renewal. For example, most insurers don’t see a new paint job as something that would affect your insurance, but large decals or changes to the engine will most likely affect your policy. Kid-rules apply: come clean, take responsibility (i.e., pay more for your policy), and avoid punishment (i.e., ending up with an invalid policy and no insurance coverage at all).

A last note:

If you have a nagging feeling something might be wrong and you might be in trouble, policy-wise, go with your gut and call your agent. Insurers have top-notch investigators, so while you might be able to keep a secret from them for a while, if you get in an accident, need a repair, or are the victim of a theft, you can be sure they will find out, and the last thing you want is to be stuck with all those bills.