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Car accidents can impact you in more ways than one, especially if you were at fault. Auto insurance companies may drop you as a customer if you submit a claim following an accident — but the good news is that you're more likely to face a nonrenewal rather than a cancellation.
Here's what you should know about the difference between the two and how to avoid being dropped.
How does a car insurance company cancel a policy?
When an insurance company cancels a policy, your insurance is terminated and you are no longer covered by the company. According to the Insurance Information Institute, insurers can't cancel policies that are older than 60 days — but there are exceptions. Insurers can drop you if you don't pay the premium, you've misrepresented yourself on the application, or your driver's license has been suspended or revoked.
How does a car insurance company send a nonrenewal?
A nonrenewal, on the other hand, occurs when an insurance company decides to end your coverage when the policy expires. The company usually has to give you a 10- to 30-day notice and explain the reason. They can't base the decision on your gender, race, age, marital status, profession or physical impediment. But they can choose not to renew the policy for almost any other reason — especially if they feel you're a high-risk policyholder.
Experts say your insurance carrier probably won't cancel your policy after an accident. But the company will likely charge a higher premium when it's time to renew or simply choose not to renew your policy.
These two possibilities are more probable if you've:
- Filed multiple claims in a relatively short amount of time.
- Been involved in multiple accidents for which you were at fault within a three-year span.
- Committed a serious moving violation, such as reckless driving.
Can my car insurer legally cancel or choose to not renew my policy?
Insurance companies must follow state laws and underwriting guidelines before canceling a policy or choosing not to renew one, says Benjamin Blackmon, a former personal lines underwriter.
"In some states, like Tennessee, you can cancel for any valid underwriting reason not specifically excluded," he says. "Therefore, an insurer would be able to cancel you for a single at-fault accident. In other states, like North Carolina, this would not be the case. Instead, the insurer may be able to remove physical damage insurance — such as collision coverage — and leave just liability coverage on the vehicle."
Most standard insurers won't cancel coverage after just one accident, he adds, unless there are other mitigating circumstances.
And if you're involved in an accident but you're not at fault, your insurance company usually won't cancel your policy, says Christopher Paradiso, owner of Paradiso Financial and Insurance Services in Stafford Springs, Connecticut. "It may only affect your insurance if the party that hits you doesn't have insurance and you need to put in a claim using your own collision coverage."
So long as the accident occurs before the actual cancellation or nonrenewal date your insurer indicates, your insurer is obligated to cover the claim based on the limits stipulated in your policy. Nevertheless, other incidents could lead to claim denials.
How to avoid a policy cancellation or nonrenewal
Here are some tips to lower your risk of being canceled or nonrenewed:
- Think carefully before filing a claim. If the accident results in only minor damage that costs less than your deductible amount, consider paying for the fix with your own funds without involving your insurer.
- Be a safe driver. "By ensuring that you're not distracted, you will be more aware of your surroundings and less likely to be involved in an accident," says Paradiso.
- Pay your premiums on time. Set an automatic reminder if you need to.
- Be honest with your insurer. That goes when you're applying for a policy, amending your coverage or filing an accident report or a claim.
If your policy is canceled or nonrenewed, you can try shopping around for an affordable policy with other carriers.
"There are options out there in every state," says Bob Passmore, assistant vice president of personal lines for the Property Casualty Insurers Association of America. "Including companies that specialize in offering policies to high-risk drivers and which will, consequently, charge higher premiums than normal."
The one thing you don't want to do is drive without proper insurance. Every state except New Hampshire and Virginia requires drivers to have liability insurance coverage, with penalties imposed on drivers who don't.