What does canceled auto insurance policy mean?

Not all people understand how an insurance company works. That is why many seem baffled by certain policy terms such as canceled insurance policy and lapse insurance policy. This article is to give you a better understanding of these two terms with regard to auto insurance policies.

There are instances when an insurance company cancels an auto insurance policy. Cancellation means that your policy is terminated before its expiration or termination date. When you file for a new auto insurance policy, the insurance company has the right to cancel your policy for the first 60 days of your new policy. The cancellation may be due to various reasons but the most common ground for cancellation is when upon investigation the company finds out that your risk does not match the premium that you are actually paying. After 60 days, the company may still cancel your policy if you got the policy through fraudulent means, you neglect to pay for the premium on or before the date its due, if you did not reveal all the pertinent information regarding your vehicle, and so on. It is best to ask your insurance representative regarding the cases and the provisions when an auto insurance policy can be canceled.

In general, there are three kinds of cancellation. These are the following:

1. Flat-out cancellation revokes a policy as of its effectivity date without demanding any payment of premium from you. This case usually occurs when an insurance company recognized that it has offered you a wrong quote for your policy. The company will then cancel your policy and reimburse all your money. This is also done when an insurance company declares that your policy is null and void, especially when the company finds out that not all the pertinent information was properly submitted to them for accurate risk assessment.

2. Pro-rata cancellation revokes the old policy and corrects the premium in proportion to the time the coverage was in effect. The company may even give you a refund for some of the premium that you have paid if their calculation of your old policy is more than what your premium should be.

3. Short-rated cancellation revokes a policy as per your request if you want to terminate it before the expiration date. The insurance company will most probably charge you a premium bigger than what would be appropriate for the time insured. However, see to it that you read and understand thoroughly a policy before you apply for it so that you will not be baffled when you suddenly have to request for a cancellation. In general, The additional charge is for the fixed expenses that have been acquired by the company.

What does a lapse in your auto insurance policy mean?

Usually, insurance companies charge a policy based on an insurance history continuum and various factors related to the policyholder. Lapsed auto insurance may lead to termination of the policy due to nonpayment of premiums. However, the policy has not yet reached the canceled stage. Once you pay your premium, you can get your policy to work again. However, the policy will work from the time and date of the payment onwards. Although you paid for your premium, you cannot make it cover for you backwards. The auto insurance policy is indeed reinstated but with a lapse (gap) in coverage. Nowadays, a lapse in coverage for a short period is no longer a hindrance to get oneself a policy but it becomes a factor in determining your new policy rate. It is recommended that you pay your insurance broker a visit and talk with him/her regarding a lapse in coverage and how it can affect your insurability.