No premium grace period; premium due at term start.
Proof of insurance/financial responsibility mandatory in all states.
Uninsured (UM) and Underinsured Motorist (UIM) coverage offered in most states.
No-fault insurance (some states): Personal Injury Protection (PIP) covers first-party benefits regardless of fault.
State Government Roles
Legislative: Makes insurance laws.
Judicial: Interprets laws and policy provisions.
Executive: Enforces laws via state insurance departments.
Insurers use state-specific endorsements to align policies with state laws.
Personal Auto Policy (PAP) Cancellation and Nonrenewal
Key Terms
Expiration: Policy ends at term’s conclusion.
Renewal: Policy continues for another term upon premium payment.
Termination: Ends via cancellation, expiration, or nonrenewal.
Cancellation: Ending coverage during term with written notice.
Nonrenewal: Insurer or policyholder chooses not to renew at term’s end.
Automatic Termination: Occurs if policyholder doesn’t pay renewal premium or gets duplicate coverage.
Cancellation Provisions
Insured Cancels: Returns policy or provides written notice; unearned premium refunded.
Insurer Cancels (Nonpayment): 10-day notice (15/20 days in some states).
Insurer Cancels (Other Reasons):
Within 60 days: 10-day notice (15/30/45/60 days in some states).
After 60 days or renewal: 20-day notice for nonpayment, license revocation, or misrepresentation.
Many states require endorsements to make cancellation provisions consumer-friendly.
Nonrenewal Provisions
Insurer must provide 20-day notice before expiration.
Nonrenewal rules:
Less than 6 months: Nonrenew only after 6 months.
6–12 months: Nonrenew only after 12 months.
Over 1 year: Nonrenew only on policy anniversary.
Example: John’s PAP starts Jan 1. Insurer cannot nonrenew before July 1 with 20-day notice.
Grace Period
No standard grace period in PAP, but some insurers or states may offer 7+ days for non-initial premiums.
Automatic Termination
Policy terminates if:
Policyholder doesn’t pay renewal premium.
Policyholder gets duplicate coverage (first policy ends when new policy starts).
Example: Bill ignores renewal notice; policy terminates at term’s end.
Financial Responsibility and Compulsory Insurance
All states require proof of financial responsibility (e.g., insurance) to register vehicles or after certain violations/accidents.
Financial Responsibility Laws: Require proof after accidents or violations.
Compulsory Insurance Laws: Require proof at registration/inspection; minimum liability limits vary (e.g., 15/30/5 or 50/100/25).
Compulsory laws offer more public protection than financial responsibility laws.
Uninsured/Underinsured Motorists (UM/UIM)
UM: Covers losses from uninsured drivers.
UIM: Covers losses when at-fault driver’s insurance is insufficient.
Mandatory in some states; offered in most.
UM/UIM do not stack; only one applies per claim.
No-Fault Auto Insurance
In no-fault states, insurers pay first-party economic damages (e.g., medical, lost income) via PIP endorsement, regardless of fault.
Compulsory No-Fault (9 states): Limits tort lawsuits based on verbal/monetary thresholds.
Add-On Benefits (9 jurisdictions): Pays economic losses without limiting lawsuits.
Choice No-Fault (3 states): Policyholder chooses no-fault or tort-based coverage.
PIP covers bodily injury, not property damage.
Other Regulations
Aftermarket Parts: Must be disclosed; consumer consent may be required.
Residency Statements: Confirm insured’s state residency or vehicle garaging.
Arbitration: Used for UM/UIM disputes; conducted locally.
Rental Car Coverage: Policy must state coverage and limitations.
Constructive Total Loss: Repair cost exceeds 75–80% of vehicle’s value; insurer pays actual cash value.
Test Your Knowledge!
Question 1: If a consumer buys a new auto policy midway through an existing policy’s term without informing either insurer, the current policy’s coverage automatically terminates upon the new policy’s effective date.
True or False?
True
Question 2: In an accident for which the other driver is at fault, a PIP/no-fault auto policy will pay for the following losses EXCEPT:
A. Medical expenses incurred by its insured policyowner.
B. Property damage to the insured policyowner’s auto.
C. Loss of income suffered by the insured policyowner.
D. Funeral expenses incurred by the insured policyowner.
B. Property damage to the insured policyowner’s auto.