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Insurance carrier retains the rights to reduce or cancel coverage. State law forbids insurance companies from dropping you cold, they must allow for sometime so you can find another insurance company. This varies from state to state and from carrier to carrier, but usually 20 days before the cancellation or 20 days before the policy period ends.
The policy terms will explain how you should cancel coverage in case you no longer want to be insured with that carrier. Most policies required you to do it in writing. The important thing to remember is that most insurance companies will consider a cancellation of coverage effective when you put the letter in the mail. Proof of mailing your letter will count of notice of cancellation (postmark date).
Because you are paying for coverage for a specific period, the insurance company will have to give you a refund (if any) for the time that you were not insured (the remanding time in the policy). This refund is usually mailed within 30 days from when the carrier RECIEVES notice of cancellation of coverage.
The insurance can reduce or issue a cancellation coverage for different reasons noted in the actual policy. Usually those terms speak of fraud, misrepresentation, if the driver license of ANY of any of driver residents is suspended, and non-payment of premium.
In these cases, the insurance company will issue cancellation of coverage without any notice to you. In every other case, for example when the insurance carrier finds that the insured is driving the vehicle for other purpose than for personal use (i.e. delivery, newspaper route, or for business), the insurance company will not renew the policy, but coverage will remain in effect until the end of the policy period.
Insurance companies are reluctant issue cancellation coverage notices for obvious reasons. They do not want to lose your monthly payment, and there are regulations restricting them from canceling you without a reason.
The problem is that insurance company can find a reason in just about anything. If they find out that insuring you is a higher risk than they previously anticipated, then they can raise the premium (the next policy period) or just cancel you. This is the reason why many people do not like filing claims (not recommended).
They fear that the insurance company will raise the rates or cancel coverage all together. This can happen, but “what happened” has to be substantial. For example, you get in an accident driving under the influence of alcohol.
Pay attention to mail coming from your agent and/or insurance carrier directly. Often times it is just junk mail, but sometimes it is ENDORSEMENTS.
Endorsements are the tools insurance companies use to make changes to the policy you already have. They will tell you that changes will be effective after certain date. These changes can be critical and can take coverages away from you. They can change definitions, exclusions, and even the insuring agreement (read more in how to read a policy).
Having the endorsement as well as your policy in hand will be critical to the way you handle your claim. If you are not sure what policy you have and/or what endorsements, then you need to contact your agent and ask that your declarations page, policy and all endorsements be mailed to you. Do no try to settle or to understand coverage without these documents on hand.
Cancellation of Coverage clauses are not the only "terms" that you need to understand. Read more on "Choice of Law" claues.
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