Unforgiven: Top 5 reasons your insurance policy will be cancelled
Insurance companies cannot cancel your policy without good reason. However, there are ways you can land in hot water that will surely lead to a cancelled policy. Here are the top five reasons for having your policy cancelled.
1. You fail to pay on time
“The first and most obvious reason for cancellation would be failing to pay or paying late,” says Pete Moraga, spokesperson for the Insurance Information Network of California. This applies to any type of insurance.
Each state has rules governing when an insurance company may drop your policy. Grace periods will also vary depending on which line of insurance you purchase (health, auto, home, life) and which insurance company you choose.
Some car insurance companies may seize the opportunity to drop you if you’re only a few days late – especially if you're habitually behind on payments. However, many insurers value your business and won't drop you if you're a few days late.
The best advice is to pay your bills on time. This usually means your premium must be received by the due date. Dropping the payment in the mail on the due date may not be good enough. If you’re worried about being late on your payments, check with your insurance company about its grace period.
If you've been cancelled by your car insurance company, it may require that you to pay the balance due for the full term before they reinstate your insurance. For more, read about the consequences of late car insurance payments.
2. You fudge the truth
If you knowingly tell fibs to your insurance company, it has the right to cancel your policy.
“That’s a big issue,” says Moraga. To an insurance company, it’s bad business to give you a lower rate for lying. For example, lying to your auto insurer about the number of miles you drive annually can be cause for cancellation, Moraga says. Some insurers may simply increase your car insurance rates for this particular lie, but they can also cancel your policy and refuse to pay your claim — assuming you provided inaccurate information intentionally. Under-estimating the number of miles driven is one of the 5 biggest lies told to car insurance companies.
Life insurance companies may also cancel your policy if you fib. For example, if you lie about your deep-sea diving hobby and then die during a dive, your life insurance company could deny your beneficiaries’ claim. Any lie caught within the two-year contestability period of a policy can provoke the insurer to scale down the death benefit or even rescind the policy, depending on state law. When applying for any type of insurance, honestly is the best policy.
3. Your driver’s license has been suspended or revoked during the policy period
If your auto insurance company finds out that your license has been suspended or revoked, it will cancel your policy. This rule also applies to other members of your household. For example, if you have a child listed on your policy who has had his or her license revoked/suspended, your insurance company may cancel your policy if you fail to disclose this information. Car insurance companies often check your DMV record (and that of other members of your household) at renewal time. They will also find out about a license suspension if the person in question is involved in a car accident. So, if someone in your household experiences problems with their license, notify your insurer. Your policy will not be cancelled (unless you’re the culprit). Your insurer may simply exclude coverage for that person.
4. You ignore telephone calls from your insurance company
Ignoring your insurance company is never a good idea. If your insurer makes an effort to contact you – especially during a claims-settlement process – you’re obligated to comply. For example, if you get into a car accident, your insurance company will surely want to interview you or may even require you to attend a deposition if a lawsuit is involved. Failing to comply could be grounds for policy cancellation. A standard car insurance policy states that the insurer has “no duty to provide coverage” unless the insured is in full compliance with a number of duties. These include promptly notifying your insurer where, when and how the accident happened. A standard policy states that “a person seeking coverage must cooperate with us in the investigation, settlement or defense of any claim or suit” and “promptly send us copies of any notices or legal papers received in connection with the accident or loss.” This can include exams by physicians and medical records.
5. You commit suicide
Generally, life insurance policies have a contestability clause that says, among other things, the policy will not pay out if you commit suicide within the first two years of the policy. However, if you commit suicide two years and one day after you purchase the policy, your beneficiaries will be paid.