When should I cancel my car insurance?

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Joel Ohman
Founder, CFP®https://res.cloudinary.com/quotellc/image/upload/insurance-site-images/ciccom-live/41b5e36b-joel-ohman.jpg

UPDATED: Jul 6, 2017

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Here's what you need to know...

  • You are required by state law to have adequate insurance coverage for all of your vehicles
  • Anyone who does not maintain their insurance faces stiff penalties including jail time and hefty fines
  • When your car insurance is canceled, your local DMV is notified electronically

When you own a vehicle, you are required by state law to either carry insurance or prove that you are financially responsible for any damages due to an accident.

Anyone who owns a car and does not purchase and maintain their insurance can face some tough penalties which may include jail time and hefty fines.

If you are looking to make a switch, start comparing car insurance rates by entering your zip code above!

Reasons to Cancel and Not to Cancel


You should never cancel your insurance or purposefully stop making payments for the following reasons:

  • because you cannot afford your coverage
  • because you are tired of paying the expense

In most states, when a registered owner of a car cancels their insurance policy, the Department of Motor Vehicles is notified electronically. When this notification is sent, there’s a high chance that you will need to pay just to legally drive again.

This is why it is so important to keep your insurance active and to avoid gaps in coverage.

There may come a time when canceling your insurance is appropriate, but canceling the policy too soon or for the wrong reasons could cost you more than it saves you.

Canceling too soon will land you in hot water with state Department of Insurance and also with the courts if you are cited or get into an accident. Knowing when to keep your coverage and when it is time to schedule a date for cancellation is crucial.

Here are the top reasons to cancel your coverage and some of the most common scenarios where a cancellation is a costly mistake.

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Moving across the Country

If you are moving across state lines, you cannot keep the coverage that you are currently paying. Instead, you must cancel the policy and buy coverage from a provider that is licensed to sell insurance in the state.

If you cancel your out-of-state insurance before you buy a new policy, you will be uninsured.

If you do not register your vehicle in the new state, you need to keep your out-of-state insurance until you do so.

Failing to have insurance in the state where the car is titled will still result in fines even if you have coverage elsewhere. This is why you should set up an appointment with the DMV to get plates as soon as possible.

Purchase of a New Policy


If you are not happy with the premiums that you are paying, the only way to reduce your insurance expenses is to shop around and find a company with better rates.

Some companies might prefer to insure younger drivers and others might target the older market with competitive pricing. By shopping around and getting quotes, you will be able to identify which company is priced best.

When you do find a company that has better rates and offers great service, you can choose an effective date and then cancel your old insurance policy.

Make sure that you understand that coverage does take effect at 12:01 am on the date that you select, but it is best to cancel the next date to avoid any issues. Do not expect your policy just to cancel on its own.

You will need to notify your insurer in writing. If you are coming up on your renewal, it might just be easiest to start the new policy on your renewal date to avoid pro-rated cancellation fees.

You Are Selling Your Vehicle

When you sell a vehicle, the buyer takes ownership. When ownership is transferred to the buyer, you are no longer liable when the car is involved in an accident and causes damage to a third party.

Be sure that you have a bill of sale to prove you have signed over the title and then cancel the insurance effective the next day. If you have any time left on your policy, you may receive a partial refund.

If your vehicle is not operable or you are planning on not driving it, you need to decide if canceling the insurance is appropriate.

It is not always necessary to remove insurance entirely. If the car is registered, you need to keep the liability insurance active to avoid non-compliance fines or driver license suspensions. If the car is registered non-operational or you have turned the plates in, you can cancel the insurance.

Many people who carry physical damage will actually keep their policy active and classify it as suspended. By doing this, they will carry only comprehensive cover so that the car will be repaired if it is damaged while parked.

How to Cancel Your Car Insurance Properly


It is your responsibility to notify your insurer in writing when you want your policy canceled. While some companies have more modern requirements, you will need to speak with an agent directly before you assume a verbal cancellation is allowed.

It is best to draft a cancellation document that shows your name, the date, your policy number and the effective dates that the cancellation is to take place.

In addition to writing a letter, be sure to give the company your new address when you move. This will ensure that you will receive any refund checks or confirmations that you need without having to wait for them to be forwarded through the US Postal Service.

If you want to find better premiums, you can easily do so by using our FREE online rate comparison tool. Enter your zip code below and start comparing affordable car insurance quotes now!

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