You Lost Your Auto Insurance. Now What?

You get caught driving with a too-high blood alcohol limit, or have a high-speed crash, and your insurance company breaks up with you. Or you received a letter that states your insurance policy will not be renewed when the current term ends.

What should you do?

Deal with it, and quickly. If you plan to drive, you can’t not have vehicle insurance. Even if you can’t drive for a while because your license was suspended, you should keep some form of auto insurance in order to avoid a gap in coverage. Depending on the company, such a gap could result in higher premiums later on.

It’s important to understand the difference between nonrenewal and cancellation. Nonrenewal can happen for several reasons. For example, a company might have decided to discontinue the type of insurance you have, or to write fewer policies in your area. Or you might have done something that makes the company want to be rid of you, such as filing multiple claims.

According to the Insurance Information Institute, nonrenewal carries no stigma. Simply look for new auto insurance quotes and go on with your life.

Having your policy be canceled is much more serious. You’re looking at higher insurance costs and, maybe, difficulty in getting coverage.

Finding coverage after your car insurance drops you

Once your policy has been in effect for more than 60 days, an insurance carrier needs a reason to cancel. These include:

Fraud or serious misrepresentations on the application
Suspension or revocation of your driver’s license
Nonpayment of the insurance premium
DUI conviction
Numerous moving violations and/or accidents

State law determines how much notice the insurance company must give before canceling or not renewing. As soon as you receive such a notice, start looking for new vehicle coverage.

Again, if your policy was simply not renewed, then you should still be able to get affordable coverage. However, if your vehicle insurance was canceled outright, you’ll likely wind up in the “nonstandard” insurance arena.

Also known as the “shared” or “residual” market, the nonstandard market is serviced both by niche companies specializing in harder-to-insure drivers and also by well-known insurance companies with nonstandard divisions. Together they provide coverage for:

Drivers whose insurance was canceled
Very young or very old motorists
Those whose insurance had lapsed
Drivers with very bad driving records
Immigrants without a driving history in the United States
Those with specialized or exotic vehicles

These policies make up about one-fifth of the market. To learn more about this kind of coverage, see “How to Find High-Risk Car Insurance.”

Nonstandard coverage is noticeably more expensive. You’ll pay up to twice as much as you would for standard coverage, for two or more years.

Sometimes even the nonstandard market won’t cover certain drivers. A “last resort” insurance pool exists for these extremely high-risk applicants. To find such coverage, see this state-by-state plan list compiled by the AIPSO trade group.

Can you appeal a cancellation?

Possibly. Sometimes mistakes happen. I once heard of a woman who rented a car during a business trip and apparently received a ticket, although she was unaware of it. Then she moved, and the unpaid-ticket warning was not forwarded to her new address. As a result, her license was suspended, and she lost her insurance. (The agent went to bat for her and ultimately the company reinstated her coverage.)

If there’s a good reason you were canceled, though, then it’s time to adult-up and accept responsibility. Instead of blaming some imagined Insurance Industrial Complex Conspiracy, think about ways to change your driving habits. What that means depends on why you were canceled, but could include tactics like:

Entering a substance abuse treatment program.
Taking a defensive driving class.
Enrolling in an anger management course (if you drive aggressively or are an outright road-rager).

As frustrating (and costly) as this situation is, keep in mind that it won’t be forever. Pay your premiums, improve your driving, and resolve to become the safest motorist on the road. Ultimately you’ll wind up back in the standard insurance pool.

Award-winning journalist and veteran personal finance writer Donna Freedman is the author of “Your Playbook for Tough Times: Living Large on Small Change, for the Short Term or the Long Haul” and “Your Playbook for Tough Times, Vol. 2: Needs AND Wants Edition.”

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