You buy an auto insurance policy that will last for a specified period of time. When you’re buying a standard policy, you’ll be able to choose from a six-month period or a 12-month period.
Each period of time is referred to as an auto insurance term in the industry. Some carriers will offer one of the options and others offer their clients both.
Just because you sign up for an annual policy doesn’t mean that you’re locked in without any type of opportunity to end the contract.
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Companies may have to offer you the option to continue your policy for the entire term, but you as a consumer are free to decide if you’d like to terminate your coverage. Here’s what you need to know before you ever request to have your policy canceled before the term expires:
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Do all companies have to cancel your policy at your request?
Companies all have their own conditions and procedures. When it comes to canceling your insurance, every personal car insurance policy handles the transaction the same.
That’s because all licensed carriers are required by law to give their customers the option to end their contracts whenever they want to. This is written in each Bill of Rights that’s published on the state departments’ websites.
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Can an insurance company cancel your insurance with the same freedom?
Insurance companies don’t have the same luxury as customers do. Since canceling a driver’s insurance for any reason isn’t fair to the consumer, the state doesn’t give the carrier the freedom to process cancellations for any reason.
That doesn’t mean that your policy can’t be canceled. It’s still possible if one of the following happens:
- You lie on your policy application
- You file a fraudulent claim
- You surrender your driver’s license or it’s suspended/revoked
- You don’t pay your premiums on time
Can you be charged a penalty if the insurer cancels your policy?
If there’s a valid reason for your carrier to cancel your insurance or rescind the coverage, you’ll receive a notice in the mail. If your policy is canceled, you’ll be given some notice. When you’re guilty of lying to secure your policy, the contract is erased as if it never existed.
If you get a notice, you should shop for coverage as fast as you can. You’ll need to get a new policy set in place before the date of the cancellation that’s listed on the notice.
Luckily, since it’s the carrier that is initiating the cancellation, you won’t be charged any type of penalty or cancellation fee.
If you cancel your own policy, will you pay a penalty fee?
If you cancel your own insurance, the rules surrounding penalty fees will be different.
Since you’re the one requesting the cancellation, you can be assessed a penalty. Whether or not you’ll be assessed the fee is dependent on where you live, the reason that you’re ending the policy, and the company that you’re insured with.
What is the difference between a pro-rated cancellation and a short-rate cancellation?
When you cancel your policy, there are two types of cancellation methods. The company will either process a pro-rated cancellation or a short-rate cancellation.
When the cancellation is processed on a pro-rated basis, you’ll get a full refund for anything that you’ve paid that you haven’t used. When it’s a short-rate cancellation, a fee is deducted from your refund of the unearned premiums.
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How much is the short-rate cancellation fee?
If you do have to pay a fee, it’s nice to know how much you’ll have to pay.
The fee could really deter you from canceling your coverage before the end of the term if you have an option. Make sure that you ask a customer service agent with the company how much the fee will end up costing you before you ever bind coverage with a competitor.
You will either be assessed a fixed fee that all policyholders pay or you’ll be charged a percentage of the premiums that are left to be paid on the policy.
The fixed fee will range between just $10 and $50, depending on the carrier. The percentage-based fee could be 3 to 10 percent of the unearned premiums left on the policy at the time of the request.
How much could the fee really end up costing you?
If you’re charged a penalty rather than just a fixed administrative fee, you need to know how much the penalty really costs you. The fee can add up if you have a lot of time left on the plan before it expires. If the fee is really high, it might be better for you to wait until you switch to another company.
For example, if Carla buys a six-month policy for $600 and then she cancels it after two months, there will be a balance on the contract of $400.
If the carrier charges a 10 percent fee of the premiums that haven’t been collected, you’ll wind up paying a $40 to cancel. If you’re only saving $30 off of your premiums, waiting to switch is the better option.
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Is it common for a company to charge penalties?
It is disheartening to know that carriers are going to penalize you for exercising your right to cancel your coverage whenever you want to.
Luckily, not all companies do this. When you’re taking the time to compare companies, it might be a good idea to look for companies that won’t charge a fee first.
Some carriers that don’t include Geico, Farmers, State Farm, AAA, Allstate, Liberty Mutual, Nationwide, USAA, and Travelers.
Can you ever request that the fee be waived?
If it’s typical for the company to charge a fee, you can always ask that it be waived. It doesn’t guarantee that the company will waive it but it’s worth a try.
Many agents will work with you if you sold your car, you don’t drive, or if your car was totaled and you don’t plan on buying a replacement.
No one likes to be penalized. Unfortunately, when you sign up for a policy, you’re agreeing to pay the penalty listed in the contract.
If you want to find a new policy, find out the terms of your insurance first. After you’ve done that, start to compare instant quotes online. If you’re saving more than you’ll be charged to cancel your coverage, you can make the switch.
Before making any final decisions on your insurance company, it is important to learn as much as you can about your local insurance providers, and the coverages they offer. Call your local insurance agent to clear up any questions that you might have. Questions to consider asking include, “What is the best coverage plan for me/my family/my situation?” “What are the minimum coverage requirements in my state and what form of coverage do you recommend?” “Do you guys offer any bundle discounts if I take out both my auto insurance and home insurance with you?” and “What is the average rate of insurance quotes you guys offer?”
Before making any big insurance decisions, use our free tool to compare insurance quotes near you. It’s simple, just plug in your zip code and we’ll do the rest!
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