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UPDATED: Jul 11, 2017
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If you are unhappy with the service you received from your auto insurance agent or you are not impressed with your carrier’s departmental procedures when you file a claim, it is not unusual to think about canceling your policy.
Before you jump at the opportunity to pick up the phone and cut the ties to your carrier by terminating your policy, think about the consequences.
Canceling your policy before the time is right can lead to fees, fines, and even more serious penalties.
When you buy car insurance, you are entering into a contract.
The carrier must fulfill its duties in the contract to provide coverage until the expiration date as long as you fulfill your obligation to make regular payments.
While the insurer is obligated to provide coverage until the policy is scheduled for renewal, you are not obligated to keep your policy active.
You have the right to cancel your coverage for a multitude of different reasons.
Before you decide that canceling early is the right move, there are some important things to consider.
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What is your reason for canceling your policy early?
There are legitimate reasons to cancel a policy early and then there are hasty reasons.
It is only natural to jump to a quick decision when you are upset with a claims decision or with a rate hike, but before you pick up a pen and put your request in writing, you should be sure that you either have no need for coverage or you have a replacement plan in force.
You must think about the real reason why you are requesting termination before your term expires.
Some of the reasons you can cancel a policy early without suffering negative consequences include:
- You no longer own a vehicle and have transferred ownership legally to another party
- You have moved out of the state or the country and have insurance from a new carrier
- You are no longer a licensed driver
- Your vehicle is no longer operable and no longer registered
- You have purchased insurance with a new carrier and want to eliminate duplicate coverage
- You recently married and added your vehicle to your spouse’s insurance
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Reasons to Think Twice About Canceling Early
If you are going to be out of state temporarily and you would like to keep your discounts, there is an option to suspend your coverage instead of canceling early.
You can also suspend everything but your comprehensive coverage so that the car is still protected while it is in storage.
If you suspend your coverage, you will keep your loyalty discounts and your continuous insurance discounts that you would have lost if you had a lapse.
You should also think twice before canceling your policy just because your rates have gone up.
If you recently filed a claim or you have a blemished record, it might be difficult to find a carrier that will give you better rates or that will accept the risk.
Instead of rushing to assumptions and canceling your insurance, comparison shop and see if there are better options first.
What You Should Know About Your Refund
If you have paid your premiums in advance, it is important that you educate yourself on the refund policies of the carrier before you assume that you will get all of your unused premiums back.
Some states require insurers to give their clients a pro-rated refund, but others will permit insurers to charge a fee before the refund is issued.
Here are the questions that you should ask the carrier before canceling your policy to save money ends up costing you more than you would be saving:
— Will I receive a prorated refund?
If you pay monthly, quarterly, semi-annually, or annually, you will be entitled to a refund of your premiums that you have not used.
If you get a pro-rated refund from the insurer, the company will send you a check for the entire portion of the policy that you have not used. The more amount of time that you have until your next payment, the larger your refund.
— Is there a penalty or charge for canceling early?
Many companies have penalties for canceling contracts early. State departments of insurance allow these penalties because it costs money in administration fees to cancel policies before they are up for renewal.
The penalty can range from company to company, but many times it can be a fixed fee or a percentage of the premiums that have been unused. Asking your insurer about the penalty is best if you are canceling to save.
— When will I receive my refund?
It is your right to get your refund in a reasonable amount of time. Most companies will send a check to you within two to three weeks after the cancellation is processed.
It can be helpful to check and see if the request was received and processed five to seven days after it was sent to avoid delays.
How to Cancel Your Insurance Policy
Traditionally, all insurers would require that their policyholders put their request in writing when they want an early termination.
This requirement would protect them if the individual claimed that they did not request the cancellation and they needed to file a claim.
It is possible to cancel policies by phone and email. Some companies may even allow you to cancel your policy by logging into their online system.
If you would prefer to put your request in writing, here is the information that your request should include:
- Name, policy number, date
- Effective date of the cancellation
- Reason for cancellation
It is in your best interest to notify your insurer that you want to cancel your policy early.
If you fail to notify the company, you may pay for coverage through the grace period or have a blemish on your record because of a non-payment.