Can Auto Insurance Companies Change Rates Mid-Policy?

Vehicle insurance companies cannot modify rates while a policy is active. Regardless of any rate increases affecting all policyholders, the implementation of new rates for a policyholder can only occur at the time of policy renewal. This rule applies even if the policyholder has been involved in an accident or received a traffic violation. However, it is important to note that policyholders may need to make changes to their policies during the automobile insurance policy term, which could result in adjusted rates based on increased or decreased risk. For instance, if there are changes such as adding or replacing a vehicle, relocating, or adding another driver, the risk levels and consequently the rates may be subject to change. Additionally, there exist certain exceptional circumstances under which car insurance companies can modify the applicable rates, and these circumstances will be discussed below.

Underwriting Period

Almost every state allows a 60 days underwriting period for new automobile insurance policies sold. Within this period, the insurer can increase the premiums or even cancel the policy if they discover new information that increases the risks of insuring a particular policyholder more than what was initially known. This underwriting period is only applicable to new policies. Once this period is over, the company has to honor the rates until the renewal.

Usage-based Programs

Usage-based programs, also known as telematics programs, have gained popularity in recent years. These programs utilize telematics devices installed in vehicles to track driving patterns, mileage, and other data. Instead of relying solely on predetermined factors, insurers adjust premiums based on actual driving behavior. Policyholders participating in usage-based rating schemes may have a base rate as well as additional premium charges that fluctuate based on the data collected by the telematics device. Responsible driving habits may lead to lower additional premiums, while erratic driving and frequent long-distance travel can result in higher rates.

Lifestyle Changes and Premium Adjustments

Auto insurance policies are typically written for specific durations, most commonly six months or one year. In that time, there may be changes in your circumstances and you need to inform your insurer of those chances to make sure your coverage is updated. Not only you can make these adjustments to your policy as and when needed but also you are normally required to inform your insurer of any material changes so that they can recalculate your premium according to new risk factors. Reported lifestyle changes can affect your auto insurance premium during the policy term. These changes may include:

a) Change in your address: Relocating to a different area can impact vehicle insurance rates due to varying risk factors associated with the new location. For example, if you move from a small town to a city, you may experience auto insurance rate increases.

b) Change of vehicle: Different vehicles may have distinct risk profiles, affecting the insurance premium. For example, if you trade in your sports car for a family car, your rates can decrease significantly.

c) Commute distance or annual mileage: In some cases, alterations in commute distance or annual mileage can influence the premium. When you change your job or address, your commute distance may change, requiring adjustments to rates.

d) Changes in coverage: Typically, policyholders can make changes to their coverage as they need and they can increase or reduce coverage. These changes will affect your premium because you are charged more or less depending on the coverage.

Limitations on Mid-Policy Rate Changes

If there are no changes in your policy as described above, car insurance carriers cannot change your rates, even if they increased their base rates. Furthermore, insurers cannot penalize the policyholders by increasing their rates on an active policy because of claims or traffic tickets. This ensures that policyholders receive consistent premiums throughout the agreed-upon duration.

For example, Steven’s auto insurer decides to increase its base rates for new policyholders due to changing market conditions. However, this increase does not affect existing policyholders like Steven until they renew their policies.

Rate Increases at Renewals

Vehicle insurance companies can apply their new rates to their policyholders at renewals or increase their rates due to claims and tickets. They can even decide not to renew certain policies in some cases. They have to communicate their new rates by sending a renewal notice, which is around 30 days before the policy term expires, in most cases. They also have to send a notice of non-renewal if they decide not to renew the policy. This means that policyholders will be informed of any changes in rates when their policy is up for renewal and have the opportunity to reassess their options.

In short, insurers cannot increase rates mid-policy solely because a policyholder had an accident, filed a claim, or received a traffic ticket after purchasing the policy. Also, they cannot apply new rates, even if they increased their rates since you took the policy. However, they may increase their premiums at renewals to reflect the new perceived risk levels or apply their new rates.