Whether it is for car insurance, health insurance, or any type of insurance, your insurance company could cancel your policy, but is that even possible? More importantly, is it legal? If so, what are the reasons for cancellations?
It is important to remember that insurance companies are businesses. So they are always looking after their best interests, not yours. It doesn’t matter what the insurance agent says. It is imperative that before buying a policy, you very carefully read the terms and conditions to help ensure that you make financial decisions with confidence. Otherwise, you could end up in a sticky situation that puts you through a financial burden.
Common Reasons for Cancellations
Initially, you might be wondering, “Can my insurance company cancel my policy?” Unfortunately, they can. But why would they? Of the variety of reasons as to why an insurance company would cancel your policy, here are the five most common reasons for cancellation:
There Are Too Many Claims
How many claims are considered “too many” for your insurance carrier? Sadly, there is no accurate scale that can determine whether you have filed “many” or “few” claims in the case of insurance fraud. Although we suggest that you ask yourself the following questions to assess yourself, in case you have “too many” insurance claims:
- What was the value and/or nature of each claim?
- Were the claims related? Or were they independent from each other?
- Did the claims occur in the same place? (in the case of homeowner insurance)
- Has anything changed that decreases your high risk to danger? Such as, for example, you changed your diet, or you started exercising, you repaired your house, improved an alarm system, or changed a damaged piece in your car.
The House in Repair Needs Maintenance or Renovation
Your insurance company could issue a homeowners insurance termination if you decide to ignore its recommendation to make some repairs. These suggestions could be the result of different inspections due to safety problems, prevention, or liability.
Recommendations are given based on the answers you provide or even the commitments you acquire when you buy the policy. Be reminded that insurance companies are businesses, and they do not want to lose money ensuring your home insurance if your house is in poor condition.
If you filed a claim in the past, it is logical that the insurance company wants you to take the necessary measures to avoid any possible disaster and lose more money because of you.
Failure to Pay the Policy or Too Many Overdue Payments
“Insurance canceled my policy; what should I do?” Did you lose your job or did you forget to pay several monthly payments for your insurance? These are normal situations that could cause many problems and conflicts with your policy. If you accumulate multiple overdue payments, your insurance company will most likely threaten an insurance cancellation.
If your car insurance is canceled, you will have problems finding a new insurer because your insurance credit score will be suspended or revoked.
If you have the chance to contact your insurer to avoid policy cancellation, do it! If you don’t need or want the insurance coverage anymore, you can’t break the contract by dodging payments. You accepted terms and conditions that you are obligated to follow and not doing so can arise legal problems in your favor.
Through Criminal Records, False Declarations, or a “Moral Risk”
The term “moral risk” is used in situations wherein a person or entity takes advantage of another when they realize that they cannot take legal responsibility for their actions that could be morally unacceptable.
To be considered a moral hazard, three situations must arise:
- There is asymmetric information. One part of an economic transaction possesses greater material knowledge than the other party.
- There are different incentives for a transaction to take place. Each of the parties in a contract has different incentives for the agreement, which are not communicated.
- There is a possibility that the risk will be transferred elsewhere. People are not held responsible for their decisions and/or actions and pass risks to insurance companies.
Material Change in a Risky Situation
A material change could be defined as a substantial and continuous change that affects and increases the risks of insuring your property. If you contact your state insurance about this situation, they are entitled to:
- Cancel the contract, following the Legal Conditions, or
- Notify you in writing that if you want to keep the contract in force, you must make an additional insurance premium payment within 15 days after notification of cancellation.
Examples of Material Change
- Change of use of your vehicle (from personal to public transportation or business of transportation)
- Additional drivers using your vehicle (children obtaining their Class 5 license)
- Making modifications or alterations to your vehicle
- A change in the ownership of the house
- Running a business from home
- Having tenants or guests residing in your home
- Big renovations to your home
- Renting your house
Prevent the Insurance Company From Canceling Your Policy
Remember that if your auto insurance company cancels your previous policy, finding a new insurer will be a huge problem for you. Sometimes, you might have to pay more for the same policy in the long run because your insurance credit score has been damaged.
Luckily, in some cases, even when insurance companies have the intention to make an insurance policy cancellation. Negotiating well can make them change their mind. Here are some ideas that may be useful:
Demonstrate loyalty.
While every company may be different, it won’t hurt to show them how stable and loyal you are. This tip is particularly helpful if you’ve been insured for a period of time before the unfortunate claim incidents and you had no issues with your current insurer before that.
The most fundamental way to keep a good relationship with your insurance company is to guarantee that you don’t have a lapse in insurance coverage. An accumulation of missed or late payments is the usual culprit of a canceled policy. Always pay your premiums on time.
To avoid receiving an insurance cancellation notice, it is important that you avoid the previously mentioned common reasons for cancellation.
Show your value.
You must remind your insurer that you are more than the money that they are losing. You are far more valuable than that. They earned a great profit because of you, and they will continue to receive so if they are to continue with your policy. Some points that you should emphasize are:
- How long have you been with the insurance company? Use it to convince them.
- Calculate how much you’ve been paying your premium over the years. Not just for the policy in question but all the others. For example, add up the policies of your home, renters insurance, health insurance, auto policy, etc.
- Have you recommended them to your friends or family? Make sure to point it out as well. Everything helps.
- Let them know that you are willing to take a higher risk by paying higher premiums or availing of other insurance options if you can.
The most important thing is to make certain that your insurer sees your commitment to the contract and your sincerity to not violate it again.
In case you have any questions, do not hesitate to contact us. Remember that at Farahi Law Firm, we are available 24/7. Call us at (844-824-2955) in case you or one of your loved ones suffers an accident. We are specialists in personal injury. We are here for you!
