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What if policy cancels before claims are paid?


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Question: My friend was in an accident.  He had insurance at the time (comprehensive, full coverage, or whatever it’s called), but since then he got behind on his payments and his insurance may be canceled. Can he be certain that the accident will still be covered since his insurance was valid then?

Answer:  Your friend paid for insurance coverage for a certain period of time, so if your friend’s car insurance policy was in force at the time of the accident, then he should be covered for any claims he, or others, make against his policy.  Your auto policy just needs to be valid on the actual day of the accident for you to have coverage for the incident.

It would help your friend’s situation if the accident happened a few weeks before the policy canceled and the insurance company had already received the claims  If instead the policy canceled out, due to non-payment, the day after the accident and before claims were made, he better have proof of when the accident occurred.

Insurance fraud is rampant, so insurance companies will be suspicious of claims coming in on a canceled policy. 

This means if your friend was in a single-car accident, didn’t get a police report, and waited until after his policy canceled to make a claim, he may have a tough time tough convincing his car insurance company that the accident happened when his policy was in effect and getting his claim accepted -- unless he can provide hard proof of the date the incident.  A police report, witnesses, and the statement of any other driver involved should help confirm the date of the accident. 

You said your friend has full coverage, so we take that to mean that he has not only state liability coverages but also physical damage coverages of collision and comprehensive. This means that others he harmed can file claims against his bodily injury and property damage liability coverages.  For any damages to his own vehicle, your friend can make a collision claim.  A deductible will be due. (See “What if I can’t pay my deductible?”)

An accident without those coverages leaves him personally liable to the people he hit and responsible for repairing his own car.

Canceled? Try for reinstatement

In general, even if a car is totaled and not drivable, you should keep insurance on the vehicle until all claims are settled.  (See “Can you cancel your policy after an accident?”)  Your friend should not only now contact his car insurance company to make sure his policy was valid on the day of the accident and that the insurer will accept claims, but also to see if there is a way to reinstate his policy.

Many car insurance companies will reinstate an auto policy that has been canceled due to non-payment as long as the lapse in coverage with them has been less than 30 days and there have been no losses during the time you were without coverage.  For a reinstatement of your friend’s policy to be possible, he’d normally be required to sign a statement of no loss. 

A no-loss statement has you certify that there were no losses, accidents or circumstances that might give rise to a claim during from the cancellation date to the reinstatement date.  This is done so motorists clearly understand that they can’t make a claim for anything that occurred during the lapse in coverage.  Losses that occurred before the lapse, when the policy was still valid, or once the policy is reinstated, would be covered.

Tell your friend to get his policy reinstated quickly.  Depending upon state laws he could be penalized if he doesn’t have insurance on his car and also it can be harder (and much more expensive) to get an auto insurance policy after a lapse. 

Car insurers typically give better rates to drivers who can show they’ve carried continuous coverage, so your friend will likely need to shop around to get the best car insurance rates possible if his previous insurer won’t reinstate his policy.  Even with a lapse in coverage, comparison shopping can help you save money.  (See “Pocket $1,102 just by  shopping around”)

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