A global pandemic has a way of bringing about many changes, including some difficult financial times.

Kids are going to school virtually, stores are limiting numbers of shoppers, businesses are closed and an unprecedented number of employees are either working from home or have lost their jobs. All of this adds up to tPink piggy bank wrapped in bandages.he potential for less income as well as fewer trips in your car.

According to a Global Analytics Survey of 3,000 employees between March and April 2020, 97% of North American office workers surveyed worked from home one or more days a week during the pandemic.

But let's not forget that only about half of all employees have a job that allows them to work from home.

Whether it's a different work schedule or lost work altogether, changes have been affecting everyone. How do you reconcile having a smaller income every month but the same big old bag of bills?

You look for ways to save, of course. Are there subscriptions you don't use while you're working from home? Services you don't need?

One of the first places people tend to look at is auto insurance. If you're not driving as much, you don't need your insurance, right?

Wrong.

Before you consider canceling your car insurance, keep reading to find out why that's not the best decision.

Why canceling car insurance is a bad idea?

There are several reasons canceling car insurance is not a good move, even when you need to save money. Here are some of the biggest reasons:

Coverage lapse

If you cancel your insurance and then re-up it a few months later, you get lumped in with what insurers call a lapse in coverage. In the insurance companies' eyes, that typically means you didn't pay your bill and your policy was canceled, or your policy got canceled because of high-risk driving.

"Insurers say that much like drivers with poor credit, based on their research, drivers with a lapse in coverage file more claims, so do high-risk drivers," explained CarInsurance.com editorial director Michelle Megna.

When you cancel, the following happens but can vary depending on what state you live in:

  • Because the car is registered in your name, your state DMV will assume you are driving it. So, you will typically have to surrender the plates, cancel your registration, or face fines. That’s a lot of hoops to jump through if you plan to start driving again reasonably soon, as you'll have to register it again, also.
  • You'll lose discounts you may have with your current insurance company, such as multi-car, bundle and if you've built up time toward safe driver discounts or loyalty discounts.
  • When you need to get coverage again, you'll pay an average of 9% more because insurance companies frown upon a lapse in coverage.

When disaster strikes

Working from home doesn't mean that you’ll never need your car. If there were an emergency and you had to drive it, fines could be levied against you, and if you get into an accident, you may be held responsible for out-of-pocket damages.

Keep in mind that not driving means truly, not driving at all. No quick trips to the store, no emergency drives to the ER, not even a one-mile drive down the road to the neighbor’s house. If you drop your car insurance, driving for any reason is illegal (unless you live in New Hampshire or Virginia) and incredibly risky.

“While a couple of states don’t require you to have car insurance to be on the roadway, they require you to have financial responsibility,” notes Penny Gusner, CarInsurance.com’s senior consumer analyst.

“You are mandated to have the means to pay for an accident if you cause one while driving without insurance. If you don’t, expect penalties from the state, plus possible lawsuits against you that could result in your wages being garnished or your home having a lien against it.”

Instead of saving, you could end up paying

Even if you are not driving at all, there are laws in many states that require a registered car to be insured. If you don't live in one of those states, and you still think you won't be driving, consider that comprehensive insurance would cover natural disasters, fire, and theft even if your car were just sitting in your driveway and not being driven.

Another critical thing to consider is if anyone else living in your home might drive your vehicle with or without your knowledge, you may still face fines for lack of insurance and costs for damages if the person is in an at-fault accident.

Canceling your car insurance can be an expensive decision.

Don’t cancel: there are better ways to lower car insurance

Now you know why canceling your car insurance may not be the best idea, but you still want to save some money, right? We have some great tips on how to lower your car insurance if you’re driving less or just looking for ways to save money.

  • Usage-based insurance: check into a pay-per-mile insurance policy or other usage-based programs like Progressive’s Snapshot
  • Low mileage discount: Ask your insurer about discounts for low mileage
  • Raise your deductible: Raising your deductible will lower your premium, but be sure you can afford the higher deductible in the event there is a claim
  • Temporarily suspend your insurance: If you are on military deployment or traveling for long periods, suspending your insurance temporarily may be an option
  • Call your agent: Ask your insurance agent for advice on how to lower your car insurance premium
  • Shop around: At least once a year, shop around to make sure you’re getting the best deal on your car insurance.

When to cancel car insurance

Although we’ve suggested several alternatives to canceling your car insurance, there will undoubtedly be times when canceling makes sense.

Maybe the pandemic situation has led to such a decrease in income that you truly can't afford the car insurance bill. At this point, canceling may seem like a necessity, but this doesn’t mean you couldn’t work with your agent to decrease coverage to a more affordable rate. Perhaps that means reducing to your state’s minimum liability required until you can get back on your feet.

The only time canceling car insurance is a good idea is if you get rid of your car. Maybe you're downsizing from two cars to one? Perhaps you've decided public transportation is the only thing you'll need for the foreseeable future. Whatever the case, you don't normally need car insurance if you don't have a car to cover. If you have a special circumstance, such as being required to carry an SR-22, and still need a policy without a car, look for a non-owner policy.

When to cancel car insurance after selling car?

If you are selling or have sold your car, you’re probably wondering how and when to cancel car insurance. If you sell your vehicle, you will want to contact your insurance agent immediately to let them know you’ll be canceling and what date the cancellation should be effective.

Many people think that once their car is sold and the title is transferred with the DMV (Department of Motor Vehicles), the insurance company will be notified by the DMV. But the reality is, things don’t work that way. Imagine if the DMV was responsible for informing every single insurance company every time vehicle ownership changed for each vehicle in their state.

Instead, it is up to you to cancel your insurance, and it just might result in you getting a premium refund if you prepaid your premium.

Can you cancel car insurance at any time?

Whether you have prepaid your full annual premium or pay installments monthly, you can cancel your car insurance at any time. If you have prepaid, your insurance company will issue a refund check. Some companies have cancellation fees, so check with your insurer so you won't be not-so-pleasantly surprised.

If you cancel but have a claim in process for an incident that happened before the cancelation effective date, the insurance will continue that claim process through completion.

The verdict on canceling car insurance

When times are tough, we all look for ways to save money. We are in favor of saving money but not when the financial risk outweighs the savings.

Unless you don’t own a vehicle, don’t cancel your car insurance policy. There are better and safer ways to save money on your car insurance. Before you consider the possibility of canceling your coverage, make sure you know the extensive repercussions of no insurance and your other options to get cheaper insurance while keeping your essential coverage.