Yesterday, I blogged about how to avoid problems canceling your auto insurance when you’ve sold your car. But canceling your auto insurance when you no longer have a car, may be a bad idea for you, if you are going to own another car in the next year.

Often, when you sell your car, cancel your auto insurance, and do not own a car for a period of time, your auto insurance, when you need to get it again, is much more expensive than if you had not canceled your old auto insurance policy. A more expensive auto insurance policy, simply because you did not have a car or insurance for a period of time, is another situation causing people to feel ripped off by their auto insurance company.

I will show you how to avoid higher rates with a new auto insurance policy. This blog entry will explain the reasons why it benefits you to keep continuous auto insurance, and how you can keep your auto insurance policy active, when you no longer own a car, for a few dollars a month, which can save you a lot of money on auto insurance, when you get a car again.

The best way to show you how to avoid the higher costs & headaches of canceling an auto insurance policy, and starting a new auto insurance policy at a later time, is to use an example from my experience working in the insurance industry.

I had a customer contact me about their auto insurance. The customer had one leased vehicle, and the lease would be over in a month. The customer told me they would be without a car for about 6 months, then they would buy or lease a new car.

I explained how the customer could cancel the policy, but it may be a better idea to keep the policy active, if they knew they were getting another car in 6 months. I could remove all coverage, except Comprehensive coverage, a procedure my company usually does for cars people own, but will not be used for an extended period of time.

Keeping only Comprehensive coverage, with a high deductible, is inexpensive, even on a new car, to keep a policy active for a period of time when you don’t have a car. I don’t remember this customer’s price for a Comprehensive only policy, but I’m sure it was less than $15 a month, and it was probably much less.

Here are the reasons why keeping your auto insurance policy, when you don’t have a car, is a good idea:

1. One of the major rating factors (unless prohibited by state law, which may only apply in a very few states) is the length of time of your continuous auto insurance history.

You may ask, “I have been continuously insured for 10 years, why would a 6 month break in my insurance now, when I’m not driving or own a car, hurt my rates?”

Insurance companies weigh (and often can only use) recent history very heavily. For example, you may go 20 years without an auto accident, but if you have had two at-fault accidents in the last 3 years, the insurance company is concerned with the likelihood of claims in the future. You might be having a streak of bad luck, or your driving behavior might have changed for the worse. Your recent driving record is the best predictor of future claims.

Also, insurance companies hate not having verifiable data. If you haven’t had a car or auto insurance for the last 3 years (or even 6 months), the insurance company can’t confirm your clean claims history is because you haven’t had accidents, or because you haven’t had insurance.

Insurance companies charge higher rates for the absence of recent information, such as a verifiable, clean insurance claims history, since they have less information to predict your future risk of having a claim.

Having continuous insurance without any break in coverage can give you much lower auto insurance rates. Some auto insurance companies continue to give you a lower rate, up to 6 years of continuous auto insurance. If you have a long continuous insurance history, 3 years or longer, you do not want to ruin it by having a a short break in coverage, because you did not have a car. In many states, if you don’t have at least one year of continuous auto insurance effective until the start date of your new auto insurance policy, you  do not qualify for a standard auto insurance policy, and you have to have nonstandard auto insurance,  the same as people with bad driving records, and pay high rates, all because you did not have a car.

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When you have an active auto insurance policy, you can call your agent with the information about the car you are buying. Your agent can add the car to your policy and adjust your coverage, when you are ready to pick up the car, and will most likely be able to bill you, without you making a down payment.

Without an active auto insurance policy, you have to apply for auto insurance, even if you go back to the same insurance company you had before. Insurance company rates & rules are always changing. You may not qualify for the rates you had before. Your claims, credit, & driving record will be checked when you apply for a new auto insurance policy.

If you had a speeding ticket 2 years ago, which may have been unknown, or not rated for, under your old auto insurance policy, will affect your new rates, and may make you ineligible for preferred auto insurance. A claim 18 months ago where your car was hit while parked, did not affect your old rates, but may disqualify you from an accident-free discount with your new policy, which you may have received under your old policy.

There are many factors which could lead to your new policy being more expensive, and if for no other reason, your lack of continuous insurance coverage may make your new auto insurance rates much higher.

3. By keeping your old auto insurance policy active, you keep your continuous insurance history, so you can get much better rates when you shop your auto insurance, than if you canceled your old policy, and shop for auto insurance when you have a car again.

By keeping your old auto insurance, you have the convenience, and possibly lower rates, of adding the car to your old auto insurance policy, but you also have the freedom to shop to find better rates, and having a long continuous insurance history can help you get them.

life changes, like moving to a new home address, or getting a different or additional car, may mean your auto insurance company no longer has competitive rates for you. When you have a different car, shop for the best auto insurance rates with all the leading car insurance companies, to make sure you are not paying $100s more than you need to pay for car insurance.

The customer I mentioned, decided to cancel their auto insurance. 6 months later, they bought another car, called a different agency, representing the same company they were insured with through my agency, and applied for auto insurance.

Mistakes were made with the application, coverage was not provided until weeks after they owned the new car, and their new auto insurance rates were outrageous. The customer finally called me in frustration, and fortunately, I was able to fix some of the mistakes made, and get a lower rate for the customer — but it was not nearly as good as the rate the customer would have paid, if they kept their old auto insurance policy active.

Not every insurance company may allow you to keep an active insurance policy on a car you no longer own, though it is pretty commonly done. If you already pay nonstandard rates, have an insurance history with recent lapses in coverage, or a bad driving record, it may not make sense to keep your auto insurance.

But it is best to discuss your options with your agent or insurance company (preferably your agent, with this matter, if you have one). You may be able to avoid higher auto insurance rates and a huge hassle, which make you feel like you have been ripped off by an auto insurance company.

If you haven’t shopped your car or home insurance in a few years with at least 5 other companies, there is a good chance you are paying too much.

Have you cancelled your auto insurance after selling your car, and regretted it when you purchased a car again? Comment or ask me questions on my facebook page. Follow me on Twitter for important insurance consumer news & new blog entries at CarInsWatch.