Your Car Insurance Got Canceled: Now What?

Car insurance costs keep going up, with drivers seeing a 20.6% price increase from February 2023 to February 2024. As people try to squeeze a little more money out of their budgets, some policies are getting canceled altogether because insurers are leaving their state. So what can you do about canceled car insurance?

First, you need to know an insurer not covering your state is only one reason your policy could get canceled. It can happen because of several other circumstances. If it does, though, it’s important to understand your options.

4 Reasons for Canceled Car Insurance

You can experience canceled car insurance any time. But Hugh Allen, principal product strategist at Hi Marley, said midterm cancellation typically happens for different reasons than cancellations at the point of policy renewal.

“Carrier cancellations at renewal can be driven by two actions,” Allen said. “The customer no longer meets the eligibility requirements or underwriting rules for that carrier’s product, or the carrier has decided to no longer sell the insured’s product or all products in the state the insured has current coverage in.”

Midterm cancellations, on the other hand, most often happen because of the policyholder. Here are some reasons you might receive a cancellation notice.

1. High-Risk Policyholder

Insurers are in business to make money. Too many high-dollar claims can wipe out earnings and put an insurance company out of business. Companies seeing you as a risk may make them drop you.

“If someone has multiple DUIs, an unreasonably high accident count and a history of poor driving behavior, they might not be considered insurable,” advises Zach Lazzari, founder of Cross Border Coverage. “For this reason, the insurer can drop them as a customer.”

2. Non-Payment

It’s likely no surprise that if you don’t pay your premiums, your insurer will cancel you. The same would happen if you didn’t pay your cable or electricity bill. The problem is that failure to pay could leave you with a lapse in coverage that can haunt you as you struggle to find a replacement.

“Department/registries of motor vehicles are increasing the amount of data they collect and potentially share with carriers,” Allen said. “Those accidents and speeding tickets will be disclosed when you quote with a new insurance carrier. Even cancellation for non-pay history is available to carriers that share information with data aggregators.”

3. Change in Eligibility

Your premiums and coverage are based on the information you provided when you purchased the policy. If one or more of those circumstances change, you might run into canceled car insurance.

“Changes in risk factors such as moving to a high-crime area or acquiring a vehicle with a poor safety record may prompt insurers to reassess the policyholder’s risk profile and potentially terminate coverage,” said Michael Hills, CFS®, CIS™, a financial advisor at Apex Wealth.

4. Policyholder Fraud

Chances are you don’t think of yourself as someone who would commit fraud against an insurance company. But if you’re using your vehicle for unauthorized business activities, you could find yourself hit with a cancellation notice. This may include driving for food delivery and rideshare services.

“If you’re using your personal auto for your business and the insurance company is not aware of it, they could drop you once they find out,” All Solutions Insurance’s vice president and chief financial officer Rajni Kapur warns.

How to Avoid Canceled Car Insurance

If you have an insured vehicle, there’s no guarantee a company won’t drop your policy. However, there are some things you can do to reduce your risk.

Pay Out-of-Pocket When Possible

We’ve all known someone who paid insurance premiums for years, only to be canceled the first time a claim was filed. While that’s the extreme, the truth is, claims can put you in that dreaded high-risk category. Scott Lieberman, founder of Touchdown Money, advises keeping claims as infrequent as possible.

“If you have a small accident that you can afford to pay for out of pocket, doing so can keep your insurance company from ever adding it to your driving record, avoiding that strike against you,” he said.

Proactively Reduce Your Risk

Certain things will bump up your risk profile, like adding your 16 year old kid to your policy. When you do make those changes, Kapur suggests being open with your insurer about it. She also recommends taking a proactive approach to reducing your perceived risk.

“If you are a high-risk profile, such as having a young driver on your policy, have them take defensive driving courses and install safety features in the cars,” Kapur adds.

Stay on Top of Payments

One late payment can lead to a company canceling your policy, potentially leading to a lapse in coverage. Kapur suggests setting up automatic payments to keep that from happening.

If, for some reason, you can’t afford to pay your bill, don’t wait for your due date to pass. Maya Afilalo, an auto insurance industry analyst at AutoInsurance.com, said to reach out to your auto insurer as soon as you realize you won’t be making a payment.

“It’s not a guarantee, but some companies have grace periods or may be able to make an exception to give you a little extra time to pay,” she said.

Handling Cancellations

Sometimes, despite your best efforts, you get that dreaded cancellation notice. When that happens, it’s time to look into your insurer’s dispute process. As Allen said, if your cancellation was due to a missed payment, but you made the payment, you should be able to show documentation to get it reinstated. If you were dropped because of changes on the insurer’s side, Allen suggests asking to see the rules that led to the cancellation. Whatever you do, though, it’s crucial to avoid going too long without a policy in place.

“Once you have a ‘lapse in coverage,’ or a period where you have no insurance, your underwriting eligibility with many of the top insurance carriers will be very limited,” he said. “Make every attempt to not have a lapse period on your insurance history.”

One of the best ways to find a new policy quickly and within your budget is with search tools like Insurify, QuoteWizard and EverQuote.

Canceled car insurance can feel scary, but quick action can make a difference. The more you can do to avoid a cancellation, the better, but when it does happen, you can dispute it. Understanding the reason for cancellation is the best first step. Once you’ve achieved that, you can start to repair the damage.

Stephanie Faris is a professional finance writer with more than a decade of experience. Her work has been featured on a variety of top finance sites, including Money Under 30, GoBankingRates, Retirable, Sapling and Sifter.