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UPDATED: Mar 13, 2020
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Letting your insurance cancel can be dangerous. If you drive with a policy that’s been terminated by the company, you’re at risk of having an uninsured loss. Even uninsured drivers who don’t experience losses have to worry about being cited or penalized by law enforcement officers, the courts, or their finance companies.
Even uninsured drivers who don’t experience losses have to worry about being cited or penalized by law enforcement officers, the courts, or their finance companies.
If you fail to make a payment to your insurer, your policy will cancel due to non-payment. But not many people discuss when or how an auto insurance policy expires. An insurance expiration can be just as dangerous as a cancellation. Here’s what you should know so that you’re never stuck without coverage:
What is a car insurance term?
Insurance policies are sold in terms. The term is the policy period where the rates that you’re quoted will remain valid.
It consists of an effective date and an expiration date that can both be found on your declarations page or your ID cards. As long as you do your duty as an insured, your coverage will remain active at least until the term ends.
What is a car insurance renewal?
A policy doesn’t just end when it’s about to expire. Instead, companies will process renewals.
A car insurance renewal is a document that shows how much you will pay after the policy has been reviewed and your new rates have been calculated. This document is sent to the policyholder about 30 to 45 days before the policy is to expire.
Do insurance policies automatically renew?
Every company has its method of processing renewals. While most states do require insurers to notify clients in writing before a policy expires, many providers have changed their processes to help their clients keep their insurance active.
This is why a lot of companies are letting policyholders set up automatic renewals.
If you have your policy set up for automatic renewal, the policy won’t expire if you don’t manually make a payment. In fact, when you give your permission, the company will take either the full payment or a monthly installment directly from your account on file.
If you don’t want to continue coverage, you simply notify the insurer before the renewal date.
What is the difference between a policy cancellation and a term expiration?
The terms cancellation and expiration are often used interchangeably. In the insurance industry, these terms are very different.
When a policy cancels, the coverage is terminated in the middle of the term at the client’s request or because the insurer initiated it.
Insurance carriers can only order mid-term cancellations for a few reasons:
- Non-payment of premiums
- Fraud or material misrepresentation on the application
- Filing a fraudulent claim
- Loss of driving privilege
If the insurance term expires, the coverage simply ends. It isn’t canceled for failing to comply with the insuring agreement, but the coverage still won’t protect you if you have a claim after the policy lapses.
If a policy non-renews because the policyholder is no longer eligible for coverage, it is still considered an expiration.
Can an expired policy affect your insurance history?
Letting your insurance lapse is never a good idea. Many insurance companies will look at your insurance history and how your relationship ended with your past insurer before extending you an offer for insurance.
Letting your policy expire isn’t as bad as letting it cancel for non-payment, but it can still affect your discounts if you have a lapse.
What can happen if your insurance coverage expires?
If you don’t activate a new insurance policy before your coverage ends, you could be at risk of having an uninsured loss. This could leave you in court defending yourself on your own dime or paying for damages out of your own pocket.
If you don’t have a loss, you can still be fined by your lender and by the state for failing to carry coverage required by your contract and the law.
Instead of having to pay hefty fines or expensive surcharges, be sure to keep track of when your insurance renews. You should always look out for renewal documentation in the mail weeks before the term is up.
If you’re not happy with the new rates that you’re being charged, shop around using an online rate comparison tool and see if you can save money elsewhere.