Cancellation vs. Non-Renewal - What's the Difference?

Picture this: You're going through your bills and see a letter from your auto insurance company with bright red letters on the front that reads "important notice." You open it up to find out that you will no longer be insured, at least by them. You might wonder, "What's this about?" Determining whether the notice is a non-renewal or cancellation could be the difference between a bad day and a dismal one.

Non Renewal vs. Cancellation

You may be confused as to the difference between a "non-renewal" of policy versus a policy cancellation. When your auto insurance company notifies you of a non-renewal, it means that your current coverage will continue until the end of the policy period, and thereafter cease to exist. Alternatively, if you are warned of cancellation, it means that your policy will be shut down immediately with proper notice in advance of the cancellation.

To put it lightly, you don't want your policy to be canceled. Non-renewal is seen as less serious by insurance companies. When it happens it's simply because your insurer doesn't want you as a customer any longer. Your policy typically will be non-renewed because you submitted too many claims in a short period of time, so you may want to rethink calling in a claim for the guy who bumped your car door in the parking lot. The policy can also be non-renewed if you have become a higher risk in the eyes of your insurer for a variety of reasons. For example, if your auto insurer finds out that you have a conviction for driving under the influence on your record, they may decide to non-renew.

With non-renewal, your current policy will end, but you shouldn't have a problem getting new insurance with another company. The rates may be higher, but consider yourself lucky as compared to the possibility of being cancelled.

Cancellation - Does that Mean I'll Never Get Auto Insurance in This Town Again?

You may find it very difficult to find a new insurance company after being canceled from a policy. This is because they see cancellation as a serious offense and a very bad risk. The rules of most states say that an insurance company can cancel for any reason within what is called a "binding period," a period of about 60 days after your policy begins. Thereafter, an insurer cannot cancel your policy except in very specific situations (Insurance Information Institute).

One of those situations is a misrepresentation on your part, such as leaving out an important detail about your driving history or driver's license suspension. However, most cancellations occur due to non-payment of insurance premiums.

Besides your accident history, one of the first questions that a potential new auto insurer will ask you when you call for a quote is if you have been canceled from a policy within the past five years--if your answer is yes, get ready for some bad news.

How Do I Recover From a Canceled Auto Insurance Policy?

If you are canceled for non-payment, you may be able to come to an agreement with your current insurer, but be prepared to plop down an entire year's premium upfront. If they refuse, or if you are canceled for another serious reason, you may have to look for a high-risk policy that will come with a price tag so high that you might want to pick up a bus schedule!

If you shop for a new auto insurance policy, make sure you leave ample time for you to do the proper research; this way you won't have a lapse in your coverage. Using InsWeb.com to compare multiple auto insurance quotes will help you save time on your research.