Lapsed Car Insurance

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There’s a right way and a wrong way to deal with auto insurance policies when you no longer need them. Handled properly, you maintain your preferred insurability status. Let your policy lapse, and you could be looking at increased costs and difficulties obtaining coverage down the road.

Non-Payment of Car Insurance Premiums

The biggest mistake you can make when you no longer need car insurance coverage is to stop payments. Risk equals money to insurance companies. If you’re not paying, you become a risk, as simple as that. It doesn’t matter how you stop driving a car, whether you sell it or scrap it. When you stop making payments without informing your insurer, you hand them the ability to cancel your coverage and designate you a poor insurance risk. Once this occurs, your insurance company as well as others, may be less likely to offer you a policy or, if they do, it may be more expensive than your driving record and claims history suggests.

Simply waiting until the end of your policy may not ensure your policy expires naturally. Insurers usually roll over policies if they don’t hear from the client. All cars using Ontario roads must have minimum insurance coverage, so accounts in good standing are typically kept active in the absence of cancellation. The company issues a renewal notice with any change in premium and extends the policy for another term.

Cancelling an Auto Insurance Policy

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To properly cancel a policy and avoid the consequences of lapsed car insurance, you must take specific steps. Most important is that you inform your insurance agent or broker in writing of your intent to cancel. This notice should include the following:

  • The name of the policyholder and the names of any other drivers named in the policy
  • The policy number and the name of the insurance company
  • The effective date of cancellation
  • The signatures of all drivers named in the policy.

Insurance providers will insist on written notice as proof of your intention to cancel. In the absence of this, a motorist could make a fraudulent claim after the cancellation date and the insurer would have no proof that the policy was cancelled. The signatures of all named drivers also closes the loophole that a driver “didn’t know” that insurance coverage was no longer active.

Early Cancellation Fees for Car Insurance

The standard Ontario car insurance policy permits insurers to recover administrative costs for policies cancelled before the scheduled expiry. The costs are usually charged on a pro-rated scale. Cancelling early in the policy’s term means a motorist will pay more to cancel than the driver who is near the end of the term.

A common discount that insurers offer is for multiple insurance products. For example, if you combine home insurance and auto insurance with one provider, you could receive a discount on both policies. Cancelling auto insurance will then increase the cost of your home insurance. Make sure to consider all factors regarding the cost and consequences of cancelling a car insurance policy.

When you’re ready to re-insure, use Ratelab’s car insurance calculator to find the best rates. Enter your postal code below to get started on the road to savings.

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