“What is the difference between my insurance policy lapsing, being canceled, or being rescinded?”
This can be an important question if you happen to have an accident and it is not clear when your coverage ended. It all depends upon what method your insurance company used to terminate your policy. We should say at the beginning, as we always do, that you should never drive without having at least basic no-fault coverage (“PL/PD”) on your vehicle. But there can be misunderstandings.
Most policies these days have a clause that says the insurance automatically lapses if you do not renew it on time. That makes it easy. If you don’t pay before the expiration date, your coverage lapses. The company doesn’t have to send you “warning letters” or offer you a grace period. If you don’t pay on time, you are not going to have coverage after the expiration date. That’s the general rule (there can be exceptions, but don’t take that chance).
However, there are times when your auto insurance company decides it doesn’t want to cover you any longer. Perhaps you didn’t accurately report the information on your application about where you really live, or about your accident history. Since these factors can determine how much your insurance costs, the company may decide to drop you if it finds out later that you didn’t truthfully report important information in your application.
I found out after an accident that my car insurance had lapsed. I never got a letter reminding me to pay. Can they cancel me like that?
This is one of the most common questions we hear from callers. The fact is that your Michigan auto insurance policy may state that it cancels automatically if you don’t make premium payments on time. In that case, there is no requirement that your auto insurance company has to send you a “warning letter” that your insurance is about to expire before it actually does.
The company can terminate your benefits in one of two ways—cancellation or rescission. If the company cancels your policy, you will get a letter saying that you will no longer be covered after a certain date. If the company rescinds your policy, you will get a letter saying that they no longer cover you as of the date of the letter, and you will probably get a refund check in the same mailing representing any unused premium that you may have paid beyond the date the policy is rescinded.
If you happen to have an accident after you are canceled, but before the date, the cancellation is to become effective, you are still covered. However, if you get in an accident after the date your policy is rescinded, you are not covered.
However, if your policy doesn’t say anything about automatic cancelation if you don’t pay on time, Michigan law does require that the insurance company send you a notice at least ten days ahead of cancelation before they terminate your policy. It probably won’t help you to claim that you didn’t receive the notice—the insurance company just has to show that they mailed it on time to the most recent address you gave them.
So be sure to keep up your car insurance payments. If your insurance expires, you can’t claim medical or wage loss benefits through the no-fault (PIP) system. And you can’t sue the other driver for pain and suffering even if the other driver was at fault. Check with a lawyer who knows about this issue if you have questions about the cancelation of auto policies.
Source: MCL 500.3020(1)
Source: 213 Mich 514