What happens to your auto insurance if your car is recalled?

Nick DiUlio

In early June 2013, Toyota announced that it was conducting a voluntary safety recall of more than 87,000 2010 Prius and Lexus HS 250h vehicles in the U.S. According to the auto manufacturer, the recall was issued because of a potential problem with the vehicles’ braking system.  Owners were notified by mail that they should take their cars to a nearby dealership in order to find out whether or not the part needed to be replaced.car recall

This certainly isn’t the first Toyota recall in recent history. According to Forbes magazine, the automaker issued recalls for more than 5 million vehicles in 2012, topping the list of last year’s most recalled vehicles. Meanwhile, Honda came in second, with more than 3 million vehicle recalls in 2012, and General Motors rounded out the top three, with about 1.5 million recalls last year.

What’s even more astounding is that there were 16.2 million total recalls issued industry wide in the U.S. in 2012—that’s more vehicles recalled than new vehicles sold that year.

If you’re one of the millions of consumers affected by a vehicle recall, you know the process can be a hassle that often involves being left without a vehicle for a few days while yours is being repaired. But what role, if any, does auto insurance play in the recall process?

How much does a car recall cost?

A vehicle recall can seem like a potentially expensive process for the average consumer. For instance, if your car needs to spend a few days in the shop, who will pay for a rental car in the meantime?

According to the National Highway Traffic Safety Administration (NHTSA), any cost associated with the recall—from repairs to rental car reimbursement—is the responsibility of the automaker.

“These car manufacturers are already getting some bad press by having to issue a recall in the first place,” says Shane Fischer, a Florida-based criminal defense attorney and insurance expert. “So that means they want to do everything they can to keep their customers happy during the process.”

According to Bret Bodas, director of automotive professionals group at the auto repair advice site RepairPal.com, even if you’re involved in an accident that was the result of a recalled part or system, your insurance provider will pay out for the claim and recoup the cost from the manufacturer. What’s more, since the accident was caused by a faulty part or system, your insurance rates won’t increase. 

However, Bodas offers a word of caution about getting into an accident after ignoring a recall notice.

“If you receive a recall notice and fail to get the repairs completed, you could be held financially responsible as a result of your inaction,” Bodas says, adding that manufacturers keep a record of all formal recall notifications they send out.

What happens to my car insurance during a recall?

According to Insurance Information Institute spokesman Mike Barry, the short answer to this question is “nothing.”

“Your insurance isn’t going to be affected one way or the other if your car is recalled,” Barry says. “Insurance is there to stem the costs that result from accidents and perils, not manufacturer recalls.”

That being said, there are a few ways in which your auto policy may play a role in the recall process.

If you won’t be driving another car while yours is getting repaired, some insurance companies may allow you to temporarily suspend or delete certain coverage like comprehensive and collision for that period of time. But this, says Kristofer Kirchen, president of the Florida-based Advanced Insurance Managers agency, may not be worth the hassle.

“For the most part, unless we are talking about a significant amount of time, the savings realized by doing this are relatively inconsequential,” Kirchen says, adding that most recalls are usually resolved in a matter of a few days.

For example, if you have an annual policy and your comprehensive and collision premiums total $600, suspending that coverage for one month will only save you $50.

Finally, consumers may be tempted to cancel their policies altogether during the time that the car is being repaired, but Kirchen doesn’t recommend doing this.

“The biggest reason you shouldn’t cancel your coverage is because it creates a gap in the continuity of coverage,” Kirchen says.

According to Kirchen, when insurance companies determine premiums, they often take into consideration how long a consumer has had continuous coverage. The greater the length of time, the bigger the discount.

“A lapse—even a small one—can have a double-whammy effect on your rating,” Kirchen says. “Not only does the consumer lose the premium credit for continuous coverage, but he will also probably be moved into a less favorable rating tier. Weigh that against the meager savings you get from canceling your policy and it’s a no-brainer.”

According to Tully Lehman, spokesman for the Insurance Information Network of California, dropping coverage during repairs also is very risky.

“What if the vehicle is stolen? What if it’s damaged in some way due to a storm or in the shop while it’s being repaired? If you don’t have coverage, you’re in serious trouble,” Lehman says. “So even if your vehicle is going to be out of your possession for a long stretch of time, just leave the insurance policy alone.”

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