You may have considered saving some money by suspending or even canceling your car insurance during this time. But do the short-term savings outweigh the drawbacks and potential risks?
What Does The Law Say?
Before you pick up the phone and break up with your auto insurance company, keep in mind that each state (besides New Hampshire) has minimum insurance requirements. The State Insurance Commission oversees insurance providers and regulates each state’s insurance industry. To find out what your state’s minimum insurance requirement is, you can contact them here.
Your car doesn’t need to be insured if you aren’t driving it, but you will need to provide proof of insurance when you register it (with the exception of a handful of states). If you are caught driving without insurance, you will likely be charged with a misdemeanor offense which is punishable by a fine or even jail time.
What Are Insurance Companies Doing During the Coronavirus to Help Their Policyholders?
To their credit, car insurance providers have been quick to react to the economic pressure that the COVID-19 pandemic has caused. There hasn’t been an industry-wide consistent response, leaving each insurance company free to manage its own relief measures.
Some of the steps that companies are taking include:
- Partial refund or reduction of premiums for policy holders
- Waiving late fees
- Expanding coverage for policy holders using their vehicle for commercial purposes (such as food delivery)
- Extending payment due dates
- Suspension of policy cancelation due to non-payment
To see if you are eligible for any relief measures as a result of the coronavirus, contact your insurer.
What Could Go Wrong If You Cancel Your Insurance?
Your car insurance policy doesn’t only cover your car while it’s on the road, it’s also protected while it’s not being driven. A vehicle can be damaged due to unforeseen events even when it’s parked or in storage.
Your insurance policy will likely protect your vehicle from the following:
- Break-in or theft
- Natural disasters
If your car is damaged while it’s parked or in storage, it’s not covered by your home-owners insurance policy. The comprehensive coverage option on your car insurance policy would protect you in this instance and help you pay the cost of repair partially or even fully.
When calculating your rates, insurance companies factor in your insurance history. A policyholder that has a history of canceling or suspending their insurance policy may be subject to a higher rate than someone who holds insurance consistently. You may also be charged a fee for canceling your insurance policy.
What If I Really Need To Save Money?
The first step is to talk with your insurer about your policy as they likely already have some relief measures in place. If you can’t negotiate a satisfactory outcome, and you aren’t going to be driving your car in the next 30 days or more, you may be able to suspend the majority of your insurance coverage and maintain comprehensive coverage only.
Comprehensive coverage protects all the scenarios we mentioned above, and even if you suspend all of your other coverages while you’re not driving your car, you’ll want to keep your comprehensive coverage going.
You do have some other options besides canceling your policy outright:
Change to a Use-Based or Pay As You Go Policy
Since COVID-19 was identified, most people find they aren’t driving as much as they used to. Many have converted to working from home and taking advantage of delivery-based services. For these people, it makes sense to switch to a usage-based insurance system where technology is used to track your driving habits.
Raise Your Deductible
A somewhat risky move, you might be comfortable raising your deductible which will, in turn, lower your premium. With fewer cars on the road, there is less risk of an accident. This is only an option for those who have a financial safety-net.
Review Your Vehicle Classification
The vehicle classification is a broad definition of how you use your vehicle. Most insurance companies will classify your vehicle as either artesian, business, commercial, commute, or personal/pleasure. If you’re driving less your insurer may be able to lower your estimated mileage and reclassify your vehicle use to save you some money.
Ok, I Understand I Can’t Cancel My Insurance – Can I Suspend It Instead?
Suspending your insurance policy isn’t usually a viable option. However, given the current economic climate, some insurance companies are allowing their policyholders to put their insurance on hold. The drawbacks with this option include not being able to drive your car entirely, even in the event of an emergency. Additionally, your state’s laws might require you to cancel your vehicle’s registration and go through the hassle of re-registering it again at a later date.