Question: If you have car insurance and have an accident, what happens if the policy is canceled after the accident? Is the accident still covered by the policy that was in effect at the time of the accident? Do you have to keep the policy in effect until the claim is paid?
Answer: Even if your car is damaged or totaled in an accident, you would normally want to continue to keep your car insurance policy valid for a while, for a variety of reasons. However, if your policy is canceled after the accident, the accident should be covered because the policy was in effect at the time of the accident.
If your car is only damaged, and not totaled out, you’d want to continue your insurance on it. If your policy gets canceled, it will make coverage more difficult to find once the car is drivable, now that you have a lapse in coverage.
Auto insurers aren’t fond of gaps in coverage. Plus, when you go to start up a new policy, you will now have the accident and associated claims to be rated on, thus probably making your next policy more expensive.
Another issue is that the car is still in your name, which means that if you don’t have insurance on it, your state’s Department of Motor Vehicles (DMV) may be able to penalize you, since most all states require continuous coverage on a vehicle that is registered.
So, unless your car was totaled out and you’ve signed your car over to your auto insurance company, or it’s not totaled, but you’ve turned in the plates to the DMV, you should keep your car insurance policy up-to-date and valid.
The rule of thumb is that after an accident you should still keep your car insurance policy valid until you are no longer using a rental car (since you would use your policy to cover the rental) and the vehicle is no longer titled in your name.
If your car was totaled out, after the car is out of your name you may speak to your insurance company to see if state laws and insurer guidelines will allow you to cancel your policy effective of the day after the total-loss accident (not the day of, because you need it valid that day to cover the accident). After all, you were no longer able to drive the car after that time.
We wouldn’t recommend asking for the cancellation, however, if you are going to get a replacement vehicle immediately. If you cancel the policy out, then you’ll have to start all over with a new down payment on a new policy for your new vehicle, instead of just transferring your old policy to your new car.