Policy Cancellation Versus Non-renewal: What's The Difference?

If you want your policy to continue with your current auto insurance carrier, I hope you don’t get a notice for either one of these events.  But if you do, you should know what it means, why it happened and what, if anything, you can do about it.

Cancellation Of Your Policy
By law, an automobile insurance company cannot cancel your policy if it has been in force for over 60 days, unless:

•    You failed to pay your premium
•    You have committed insurance fraud or made a serious misrepresentation on your insurance application, or
•    Your driver’s license has been revoked or suspended.

If you have committed one of these offenses, your insurer can cancel your policy at any time.  The one caveat, however, is that they must give you notice. State laws vary on the number of days’ notice the company must give you before the cancellation takes effect, but expect them to give you between 10 and 30 days. In the notice, the insurer must also tell you why it has decided to cancel your car insurance policy.

During the binding period, typically the first 60 days after the policy application has been submitted, the insurer has a right to cancel at any time and for any reason.  If this occurs, it is usually because the insurance company has found a blemish on either your credit record or your driving record, making you an unacceptable risk to insure.

So, if you receive notice that your insurance company is canceling your policy, what does it mean and what can you do about it?  Simply stated, it means that in 10 to 30 days, you will be without auto insurance and you need to do something about it pronto!  There is a chance that your policy can be reinstated with the same insurer.  If you are being cancelled for failure to pay your premium on time, but you otherwise have had a good record with the company, they might agree to reinstate you.  Ask them!  Beware, though, that some insurers may require you to pay the full annual premium upfront if you have a history of missing premium payments.  If they will not reinstate you, you will need to purchase a policy from another company.  Note that many insurers flee from previously canceled policyholders because cancellation points to a bad risk.  Now you are shopping for insurance as a “high risk” customer.  You can find insurance, but it will most likely come at a higher price.  Sometimes, significantly higher.

Non-renewal Of Your Policy
Non-renewal doesn’t have the same stigma attached to it as cancellation.  When your policy’s term ends, either you or your insurer can choose not to renew it.  State laws are less specific about when an insurer may non-renew.  Non-renewal means that your car insurer will no longer sell you insurance. It can be for any reason, such as because you've made too many claims for at-fault accidents, or you were convicted of driving under the influence, or perhaps you received too many traffic citations during the last three to five years. But non-renewal isn't always the result of something you did. Your insurer may have simply decided to stop selling that line of insurance or to no longer sell insurance in your area.

As with cancellation, the insurance company must give you written notice of non-renewal. Here, too, states differ on how much time they have to inform you.  Typically, again, it is from 10 to 30 days’ notice, depending on the state’s law.  The notice may or may not contain the reason the insurer decided to drop your policy.  If it does not, you can request it in writing.  If you believe the reason to be unfair, you may file a complaint against your insurer with your state’s Department of Insurance.

As with cancellation, non-renewal puts you back in the market for insurance, but you will not necessarily be a high-risk customer unless the reason for non-renewal was a DUI or too many traffic citations. Even then, it depends on the individual insurance company, and you may be able to still get rates similar to what you had before.