When you need to shop for car insurance, there's plenty of information online on the best car insurance companies and how to get cheap car insurance. But what if you already have auto insurance and want to learn about policy cancelation or rules you need to follow before canceling?
Read on to learn how and when to cancel car insurance while avoiding any fees or penalties that might come with cancellation.
Common reasons for canceling insurance coverage
Car insurance, even the most bare-bones policy, exists to protect the driver from the financial responsibilities that might come from a car accident. In fact, there are laws that require drivers to have a minimum amount of car insurance coverage.
However, even though auto insurance is a requirement in almost every state, there are still plenty of circumstances when canceling your current insurance coverage makes sense.
Switching to a new insurance company
There are many reasons why you would want to switch your auto insurance company. Perhaps another insurer offers better rates or you’ve had a bad experience with your current agent or provider.
Whichever the case may be, if you want to switch car insurance, it’s best to shop around and consider multiple companies. You should compare each company’s coverage options and rates to make sure these align with your insurance needs and budget.
Leaving the state or country
If you’re no longer residing where you purchased coverage, you will need to cancel or switch your policy. You can’t have car insurance in one state while living in another. A move to a new state requires a change in your insurance, so you might consider purchasing a policy in your new location before getting rid of your current coverage.
You may incur cancellation fees if you don’t notify your car insurance company within an established amount of time. If you’re going to be living abroad, your insurance provider can tell you your options and responsibilities, when to cancel your current policy and what to expect.
No longer owning a car
If you’re no longer in need of a car, there is no sense in paying for insurance. However, make sure to keep your car insurance active if the car is still under your name. Even if you’re not driving it, you’re likely required to keep coverage on a vehicle to avoid fines or a suspended license.
5 ways to cancel your current car insurance policy
Once you’ve decided to get rid of your car insurance, it’s time to think about how. There are a variety of ways of doing but they all follow the same process; what varies is the method.
1. Cancel in the app
You may have to hunt around in the settings, but most insurance providers allow you to start, change and stop coverage in their mobile app or online. As with any change in policy, be aware of the terms and conditions. Some insurers may require a signature to consider the policy fully canceled or require additional steps beyond clicking a button on the app.
2. Call your insurance provider
Most insurance companies have a toll-free phone number or live online chat option that puts you in touch with a customer service representative. These service professionals can advise you on how to cancel your policy and any cancellation costs or refunds that might come with it.
3. Mail in your cancellation request
It may seem old-school, but sending a car insurance cancellation letter works, too. A letter to cancel car insurance should be sent by registered mail so you have evidence that you sent it and you’re notified when the company received it. List your relevant biographical information, policy number and any dates that come into play, and be clear about your desire to cancel.
4. Visit your local insurance office
If you prefer to deal with the cancellation in person you can visit the insurer’s local office, if they have a physical location. Bring any identification and paperwork you may need. A face-to-face meeting with a company representative may allow you to understand the cancellation process better and clear up any questions you might have.
5. Let your new provider initiate the cancellation process
If you’re leaving your current insurer because you’re purchasing a policy with another company, you can let your new provider handle the cancellation. You'll still need to participate in the process, but at least you can avoid a gap in coverage.
What to keep in mind before canceling your policy
If you cancel your car insurance, do you get a refund?
Depending on your coverage, you may have noticed policy terms about unused premiums. Having unused premiums means you have already paid into the policy without using it, and that money can be refunded.
You should be aware that your insurance provider may use something called “short-rate cancellation” if you cancel abruptly (without the proper notice period). This means they will deduct 10% to 15% of your unused premiums before you get your refund.
For example, if you paid $1,200 for a 12-month policy but canceled after month four, you have $800 in unused premiums. Under short-rate cancellation, your insurer might deduct 10% from the $800, bringing your refund to just $720.
Car insurance cancellation fees are another reality of the business and something you’ll probably come across, depending on the state of your account when you cancel. These fees are usually based on the percentage of time left on your current policy, although they vary from insurer to insurer. The best way to avoid fees is to give your current insurance company plenty of notice before canceling, as defined by your policy terms.
How much time you have left on the policy
A copy of your provider’s car insurance cancellation policy is necessary for you to know your rights as a consumer. If you find the original policy terms, you can figure out how much coverage time is left. If you can’t find your policy papers, your first step should be to get a copy from your insurance provider. Once you’ve determined how much time is left on the policy and how much you’ve already paid in, you can start looking at your options for cancellation.
If you're about to lapse in coverage
If you’re coming to the end of your coverage period, you may be in luck. If your new policy is in place, or you have sold your car, there’s no need to renew your old policy. Just be aware of the requirement that you must be covered at all times, both legally and for your own well-being, if you’re still the car’s titleholder.
But what if your current insurer cancels your policy first?
If your provider cancels your policy, you no longer have to worry about canceling it yourself. But getting car insurance after a cancellation can be tricky. If the idea of suddenly losing your coverage is upsetting, take heart: Your insurance provider is legally obligated to inform you before dropping you from your policy.
But why would a company willingly cancel your policy? There are a few basic scenarios:
- If an insurer determines you have placed a fraudulent claim, you’ll be kicked off your policy immediately. Your insurance provider will also have grounds to press charges.
- If you can’t legally drive — due to a medical diagnosis, a DUI (driving under the influence) conviction or a suspended or revoked license — your policy may be canceled by your insurer. Possible medical reasons include seizures, blindness and other similar conditions.
- If your policy application is incorrect or you left something out, your provider may drop you. This is called “misrepresentation,” and it can get your policy canceled immediately.
- If your insurer cancels your policy because you haven’t been paying your premiums, make a payment and call the insurer as soon as possible. If it’s too late, and your policy has already been canceled, you can ask to be reinstated. Your reasons for missing the premium, how long you’ve been with the company and how many lapses your policy has received will all be a part of the insurer's decision to reinstate you — or not.
Remember that insurance providers are in the business of risk — assessing and mitigating it. Your best hope for retaining insurance is to be considered a low-risk customer by having a clean driving record and paying your premiums on time.
If the company doesn’t reinstate you, you may need to look for companies open to high-risk drivers. You may encounter trouble finding a reasonable price down the line if any of the above scenarios occur.
Proceed with caution when canceling your insurance
So what happens if you cancel your car insurance? After ensuring there won't be gaps in your coverage and giving your provider proper notice (as detailed in your policy terms), you may end up with a refunded premium. Or depending on your circumstances, it may be worth paying cancellation fees or taking short-rate cancellations.
As with any contract, you first want to get a hold of your policy before making any moves. You can find this on the company’s app, online or by calling or chatting with your insurer. Since there’s so much impenetrable language in most contracts, get clarity on anything uncertain by asking the insurance agents all the necessary questions to make the best and most informed decision.