Can Your Insurance Company Drop You at Any Time?

Insurance companies are usually free to cancel your policy within two months of issuing it and may also cancel afterward if you fail to pay your premiums or if they discover that you put fraudulent information on your application. Otherwise, your insurer may have to wait until your current policy expires to drop you and must generally give you advance warning before your coverage ends.

Keep reading to learn more about the situations in which an insurance company can drop you and what steps you should take if your coverage has recently been canceled.

For What Reasons Can an Insurance Carrier Drop You?

In general, an insurance company may only be able to cancel your policy in the middle of the coverage period if it finds out you have committed insurance fraud or if you don’t pay your premiums. However, insurance carriers often have more leeway when deciding whether to renew your policy at the end of the coverage period. For example, your insurer may opt to nonrenew one of your policies simply because it has decided to stop selling that insurance product in your area.^[1]

See the following sections for a rundown of situations that can lead to specific types of insurance policies being nonrenewed or canceled.

Home

Factors that can cause your home insurance company to drop you often vary depending on the characteristics of your state. For example, multiple insurance companies are withdrawing from or cutting back in states that have become increasingly prone to significant property damage from natural disasters like California and Florida.^[2]

State governments may also dictate when your insurer is allowed to terminate your coverage. For example, home insurance companies in South Carolina can only cancel your policy if you miss a premium payment, commit fraud, breach your insurance contract or introduce a physical change to your property that makes it uninsurable. Conversely, they can nonrenew your policy for any reason besides filing act-of-God claims as long as they send you a written notice explaining the reason for the nonrenewal at least 60 days before your coverage ends.^[3]

Whenever you file a homeowners insurance claim, it typically stays on the Comprehensive Loss Underwriting Exchange (CLUE) database for five to seven years.^[4] As a result, you should be hesitant about filing a high number of claims within any given five-to-seven-year period since it may increase the odds that your homeowners insurance policy will be nonrenewed.

Auto

Your car insurance company may terminate your coverage if certain factors make you riskier to insure than when your policy was first underwritten. The most common examples of these factors include failure to pay your premiums on time, an excessive number of claims, major traffic violations such as DUIs or anything else that results in your license being suspended.^[5]

If you commit a serious moving violation or other offense, a judge may order you to have an SR-22 or FR-44 filed by your insurer to prove that you meet your state’s minimum car insurance requirements. However, not all carriers will agree to cover you if you need an SR-22, so your coverage could effectively be canceled after a major driving infraction if you need to find a new insurance provider that will file an SR-22 on your behalf.^[6]

Fortunately, it’s unlikely that your insurer will drop you after one minor accident or claim. In addition, auto insurance companies typically consider accidents from the past three to five years in the underwriting process, so getting into a second accident 10 years after your first probably won’t affect your eligibility for coverage.^[7]

Health

The primary reason your health insurance may be canceled is for failing to pay your premiums. If you use premium tax credits and have already paid the premium for at least one month since your coverage began, you are usually eligible for a three-month grace period after missing a premium payment. In other circumstances, the length of your grace period may differ.^[8]

If you don’t make up the missed payment by the end of your grace period, then not only can your policy be canceled but also your coverage may be retroactively revoked beginning on the date you missed the premium payment, meaning any medical care you received in the interim wouldn’t be covered.^[8] Meanwhile, your health insurance company can drop you if you purposefully give it false or misleading information but not if you simply make a mistake while filling out your application.^[9]

You can also lose your health coverage for various other reasons such as moving out of your plan’s service area or losing your job, although these situations should make you eligible for a special enrollment period so you can purchase a new plan. If you lose your coverage because your insurance carrier stops offering your current plan in your area, you may be automatically moved to a comparable plan offered by a different carrier as long as you have enrolled through the Health Insurance Marketplace.^[10]

Life

A life insurance company will likely only cancel your policy due to fraud or failure to pay your premiums and not if you develop a serious illness that puts your life in danger.^[11] If you exclusively have life insurance through work, it is possible that your coverage will end if you quit your job or are fired depending on the details of your policy.^[12]

Can an Insurance Company Drop You for No Reason?

Insurance companies are generally allowed to cancel your policy for any reason within the first 60 days of the policy being active and may be likely to do so if they discover inconsistent or misleading information in your application.^[1] Otherwise, there are typically a fairly limited number of reasons for which an insurer can cancel your policy before its next renewal date.

What Should You Do if Your Insurance Carrier Drops You?

After your insurance company cancels your policy, you should start looking for a new policy right away since multiple types of insurance may be required for you depending on your situation. Specifically, most states require car insurance, a few states impose penalties if you don’t maintain health insurance and mortgage lenders usually require home insurance.

Additionally, it’s crucial to obtain a new policy before your current policy expires because a lapse in insurance coverage can cause your rates to go up. That said, insurers must generally give you advance notice before terminating your policy, so you should have time to shop around before your current coverage ends.

It’s also important to take steps to correct the issue that caused your policy to be canceled if possible. For example, installing a safety net around your trampoline or taking a driver safety course after an at-fault accident could lower the odds that you will be rejected by a different insurer. Keep in mind that you could be labeled as high-risk after being dropped by your insurer, meaning you may have to shop from companies that specialize in covering high-risk policyholders and will likely have to pay significantly more for coverage.

How To Get Insurance After Being Dropped

While you could see your insurance prices go up after a policy cancellation, the best way to find a new policy at the best price possible is to compare quotes from around three to five different insurance companies. Of course, it can be stressful trying to shop around all the while knowing you have a limited amount of time before your current coverage is terminated.

As a result, you should let SmartFinancial handle the comparison shopping for you. Simply answer a few questions and we’ll connect you with an insurance agent who can help you find the best policy for your circumstances. You can click here if you’d like to compare home, auto, health or life insurance quotes for free.