What occurs when a policyholder purchases a new car but forgets to cancel their old personal auto policy?

When a policyholder purchases a new car and forgets to cancel their old personal auto policy, the correct option indicates that the original policy will be terminated on the effective date of the replacement policy. This reflects a standard practice in auto insurance where when a new policy is issued for a new vehicle, it effectively supersedes the prior policy.

Typically, insurance companies manage transitions between vehicles or policies to ensure that there is no overlap in coverage that could lead to issues, such as double premiums being paid or confusion regarding claims. The original policy will cease to exist as soon as the new policy starts, assuming that the company is notified of the vehicle change and the new coverage is properly documented. This mechanism provides policyholders with continuous coverage without the risk of maintaining multiple active policies for the same type of insurance.

Additionally, understanding this process is essential for policyholders to manage their insurance effectively and avoid potential gaps in coverage that can occur if they inadvertently let one policy lapse while trying to replace it with another.