Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager

UPDATED: Sep 19, 2020

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Key takeaways...

  • In the insurance industry, carriers will use the term drop to refer to a policy that is canceled by the company
  • An insurance company can only drop coverage in the middle of the term for a few reasons determined by the state
  • You can be dropped by an insurer during the 30-day underwriting phase for almost any reason
  • After underwriting ends, you can only be dropped for fraud, material misrepresentation, and a few other reasons
  • If you get a letter notifying you that your policy will be dropped, the letter must indicate why

You should never drop the ball when it comes to getting insurance and keeping it active. When you buy coverage, it’s critical that you’re honest on your application.

Applicants who aren’t honest or forthcoming with the details that insurance agents are asking can lose their insurance even if they make consistent payments. The last thing you want to do is be without insurance when you need it the most.

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Insurance companies must follow the rules in their industry. There are several protections in place for consumers that are laid out in the insurance department’s Consumer Bill of Rights.

One of the sections in this bill focuses entirely on when a company can cancel your insurance and when a company can’t. Here’s what you should know:

What does it mean when someone says their insurance company dropped them?

There’s a lot of industry terms that are used in the insurance world. If someone’s policy is canceled, you might hear them say that their insurer dropped them.

The term drop is only used if the cancellation is initiated by the carrier and you don’t have a choice in the matter. If you choose to cancel your policy voluntarily, you wouldn’t use the term dropped.

Insurance companies have protections but not quite as many as consumers do.

Since a carrier could be on the line to pay thousands or millions of dollars, they have to be able to have some sort of checks and balances system in place to protect themselves from things like fraud and lies.

The state legislature does offer the insurance company some power to drop policies from their book of business. There’s a lot more flexibility for the carrier if they want to sever ties with the applicant shortly after they apply for a policy.

After the application has been thoroughly reviewed, the carrier can drop a client but it has to be for an acceptable reason.

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What is a binding period?

If you’ve been dropped or you’re afraid that you will be dropped by your new company, you need to know what the binding period is and why it’s so important.

The term, “binding period,” is used to describe a short period of time after an application is submitted and before it’s issued. This period can last for 30 days or 60 days.

During the binding period, the coverage that’s applied for is afforded while the application is reviewed by a team of underwriters. The team of underwriters will run reports, verify information, and ultimately determine if the drivers qualify for coverage.

During this time, the carrier can drop an application for any reason without stating why the coverage is being dropped.

What do you do if you’re being dropped during the binding period?

If you’ve recently applied for insurance, make sure to watch your mail closely for the next month or two.

When a carrier decides against issuing the policy during underwriting, they will send the applicant a letter in the mail letting them know they are being dropped. That letter will say if you can take actions and when your coverage will end.

There may be times where you can stop the policy from canceling by signing an exclusion form or providing additional information, but most times there’s nothing that you can do on your end.

When you get the letter, the best course of action is to start shopping around for a new policy through a new carrier. This time, be as thorough as you can when answering questions for your quote.

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Can an insurance company legally drop you from the company during your term?

After the 60 days is up and your policy documents are sent in the mail, you don’t have to worry about suddenly being dropped for any reason. The company is very limited in the reasons why it can terminate coverage before the renewal date. This is called a mid-term cancellation.

While there are a lot of restrictions, there are still a few reasons why you could be dropped mid-term. You have to have violated one or more of the terms of your policy contract for the insurer to be considered justified in their actions.

Some of the reasons insurers can drop you during the term include:

  • Non-payment of your premiums
  • Filing a fraudulent auto insurance claim
  • Material misrepresentation on the application
  • Loss of a license
  • Serious moving violation that leads to the loss of a license

You will be notified that your coverage is going to end. In most states, you have to be given at least 10 days’ notice your policy is canceling for non-payment and 30 days’ notice for other valid reasons.

Your notice of cancellation must detail why the coverage will be canceled and when the coverage will end.

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Can you be dropped at your renewal?

Insurance companies might not have enough reason to drop you during the term so they will have to delay the action until your renewal. If the company drops you at your renewal, it’s called a nonrenewal.

Nonrenewal often happens when you file too many claims or when you have too many tickets. You’ll get a notice of non-renewal at least 30 days before your policy is set to expire. The most common reason to be dropped is because you’ve become a high-risk driver.

It’s not ideal to be forced to shop for a new policy. Auto insurance is one of those things that you must have so you have no choice but to buy a new policy when you’re about to be dropped.

If you aren’t sure where to begin, you should compare insurance quotes. Use our free comparison tool to get instant quotes all at once.