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 21, 2020

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Here's what you need to know...

  • Department of Insurance sets the standards and the policies that insurers must follow in every state
  • You have the right to cancel your insurance at any time and for any reason
  • Insurance companies do not have the same freedom that the insured does when it comes to cancellation

Car insurance companies do not just offer anyone insurance. A company may offer a quote to anyone who comes along and asks for one, but to actually accept an application and issue a policy is another story.

If a driver has a history of driving recklessly behind the wheel without regard for human life, that driver might find it hard to find a company that is willing to offer them even a minimum amount of liability coverage.

This is because the company will have a strict set of underwriting guidelines that the company must follow when accepted risk.

In all states, the state’s Department of Insurance sets the standards and the policies that insurers must follow and comply with to maintain their license to do business in the state.

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When can a policyholder cancel their car insurance policy?

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As the policyholder and the named insured on your car insurance policy, you have the right to cancel your insurance at any time and for any reason.

You are never obligated to stay with a carrier just because you have a 12-month term or because you still own a car.

It is against the law to drive without insurance.

An insurance carrier can never deny your right to cancel your insurance as long as you follow their rules and request the cancellation in writing.

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Backdating Your Cancellation

You are never obligated to tell the insurer why you want to cancel, but you must give a cancellation date in the future.

The reason for a future cancellation date is because insurance is a product that you use as you go.

The only time you can backdate a cancellation request is if you can show your carrier that you have purchased insurance and your coverage overlaps.

An insurance company cannot legally deny backdating cancellation when you are covered by two companies because they would be forcing you into double coverage that you cannot technically use twice.

Benefits of Giving Your Insurer Notice

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Your policy might cancel on its own when you do not make payment, but when you have the intentions of letting your insurance lapse it is best if you let your carrier know.

There are several reasons why you can benefit from giving your company proper notice.

Here are some of the biggest reasons why sending a notification or a request to your original insurer can help you avoid specific pitfalls:

– Avoid Paying More Than You Owe

Almost all companies offer their clients at least a short grace period after the due date on their policy to make a premium payment.

This period can last between 24 hours and up to 30 days. If you are paid up further in the policy, you can avoid paying for the automatic grace period that your insurers offer you.

– Being Charged for an Automatic Payment

If you have already set up automatic EFT payments with your insurer and you do not cancel your coverage, you may be charged for your EFT payment because the cancellation was never processed.

Canceling too soon before the payment date may also lead to an unexpected draft. This is why you need to prepare and give advance notice.

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– Getting a Bad Reputation as a Named Insured

You never want to leave a job without giving notice because you can never return. The same goes when you leave an insurer without giving notice.

You can leave a very bad impression and get a bad reputation when you let your policy cancel for non-payment.

Not only may the company choose not to take you back in the future, other companies may be wary of giving you discounts because they will see a lapse.

Do car insurance companies have the same freedom to cancel?

Insurance companies do not have the same freedom that the insured does when it comes to cancellation.

When an insurer takes on new business, they are given an opportunity to do their homework and to really get a good picture of the risk that they are taking on.

The marketplace is designed to protect the consumer and not the carrier.

After the policy offer is made and the declarations page has been issued, they have used most of their probationary period to find red flags or indications that the policyholder is a bad risk.

Most states allow their licensed carriers to cancel a policy for any reason if the policy has been in force for 60 days or less.

In essence, a probation period that the company has to underwrite and notify the client of information that must be verified.

If there is no reply to a request or the company is not willing to accept finding, they will cancel the policy retroactively and return your premiums to you. When no coverage is provided at all, it is referred to as a rescission.

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Reasons for Cancellation

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Once the 60 days is up, the insurer has a limited number of reasons why they can order a cancellation.

The 3 reasons include:

  • Failure to pay
  • Fraud on the application
  • Suspended or revoked license

In any other circumstances, a policy cannot be canceled until it comes up for renewal. If a company has decided to non-renew your policy or you are ready to shop for a new plan, it is time to compare premiums and rates.

You can easily and quickly start reviewing rates and do a full comparison by using our comparison tool below! Enter your zip code to get started for FREE!

References:

  1. https://www.thebalance.com/how-to-cancel-car-insurance-527450
  2. http://insurancegeek.typepad.com/ask_tim/2010/08/the-insurer-has-to-backdate-a-cancellation-when-the-customer-replaces-coverage-right.html
  3. http://www.investopedia.com/terms/i/insurance-grace-period.asp
  4. http://all-about.ucoz.net/publ/car_insurance_and_loans/rules_of_thumb/how_to_cancel_car_insurance/14-1-0-34
  5. http://www.iii.org/article/is-there-a-difference-between-cancellation-and-nonrenewal