2012 Consumer Guide to Automobile
What About Termination?
Mid-term cancellation is not permitted after a new policy is in force for 60 days, or anytime during a renewal policy, except for such limited reasons as revocation or suspension of a driver’s license of any person insured under your policy, non-payment of premium, or discovery of fraud or material misrepresentation. Mid-term cancellations, when permitted, may only be made when a notice is sent at least 20 days prior to its effective date, or 15 days prior if non-payment of premium is the ground for cancellation.
Any cancellation notice must state the reason(s) for such termination. In addition, the law requires any cancellation notice for nonpayment of premium to clearly state the amount due. A senior citizen can elect to have the auto insurer send a copy of any termination notice to a designated party acting on behalf of the senior citizen. If your driver’s license is suspended or revoked, or if you fail to pay your premium when due, your insurer is permitted to cancel your policy mid-term or refuse to renew it. Keep in mind that if you are convicted of driving while intoxicated or impaired through the use of alcohol or drugs (DWI or DWAI), in addition to a minimum $300 fine, the Department of Motor Vehicles will also revoke or suspend your driver’s license.
If you cancel an auto policy before its expiration date, some insurers will calculate the amount of your premium to be refunded on a “short-rate” basis. This means that the insurer will retain a greater portion of the premium than on a “pro-rata” basis which is equivalent to what proportionally represents the expired part of the premium or “earned premium”. This additional cost, on average, is approximately 10% of the unexpired portion of the premium. However, this difference may be greater if the policy is canceled towards the earlier portion of the policy period. This practice permits insurance companies to cover the cost of their administrative expenses on policies that do not run their full term. Alternatively, rather than using the short-rate basis, some insurers now charge a flat cancellation fee in addition to the pro-rata amount. As noted earlier, this extra charge does not apply if you cancel an Auto Plan policy in order to transfer your coverage to an insurer in the voluntary market. It also does not apply if the insured vehicle was declared a total loss, or if the insured person is entering the U.S. Armed Forces.
If a member of the military is called to active duty, they may designate an adult third party to receive bills and other notices related to their insurance coverage. They may also have the option of suspending coverage without any penalties. However, applicable conditions for suspension need to be complied with, such as surrender of registration and plates to the Department of Motor Vehicles.
At the end of each one-year period, the auto insurer must renew your policy for another year, unless it gives at least 45 to 60 days advance written notice prior to the expiration date of its intention not to renew your policy. The notice must specify the reason(s) for the nonrenewal of the policy.
Insurers may neither refuse to renew an auto insurance policy nor require the completion of a medical questionnaire solely due to an insured having reached 60 years of age.
In the event that your insurer terminates its contract with your agent or broker, the insurer must continue your policy for the remaining part of the required policy period and cannot automatically non-renew your policy. In most cases, if you request, the company must continue your policy through the terminated agent or broker for the next three one-year policy periods. However, your continued renewal with the company is dependent on other factors, as mentioned elsewhere, independent of your insurer’s contractual arrangement with your agent or broker.