When and How to Cancel Car Insurance

When and How to Cancel Car Insurance

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Whether you're switching car insurance providers or selling a car with plans to no longer drive, cancelling car insurance is typically a straightforward process. Policyholders can cancel their car insurance policy by calling their agent, mailing or faxing a signed request for cancellation or asking for assistance from a new carrier. Some insurance companies, however, may charge a cancellation fee.

It's always a good idea to initiate coverage at another insurer prior to cancellation if you still plan to own a car. Maintaining coverage will help you avoid paying high out-of-pocket costs in the event of an accident while uninsured.

When to cancel car insurance

There are several common reasons for cancelling car insurance:

  • Switching car insurance providers: Shopping around may help you find cheaper rates.
  • Cancelling coverage you no longer need: If you've subscribed to another service like AAA, ending a coverage feature, such as roadside assistance, can save you money.
  • Selling a car with no further plans to drive: Without a car, you probably don't need to continue paying for car insurance.

If you still plan to own a car, be sure that you've initiated coverage at another insurer prior to cancelling your existing car insurer. A lapse in coverage risks you having to pay extremely high out-of-pocket costs in the event of an accident while you are uninsured. And if you own a car, most states legally require some degree of car insurance.

When not to cancel car insurance

It is never a good idea to cancel car insurance coverage if you still own a car. Nearly all states require some degree of car insurance coverage for car owners and drivers. You should always check the minimum car insurance requirements in your state before cancelling your car insurance.

Every state except New Hampshire requires personal liability coverage, and several states also mandate personal injury protection. Personal liability coverage protects you against damages filed by a third party for which you are at fault, while personal injury protection covers medical expenses and lost wages when you or your passengers are injured in an accident. And even in states where little or no car insurance is required, some degree of coverage is still recommended if you plan to own a car.

How to cancel car insurance

The easiest way to cancel your car insurance is to call your insurance company or agent. In many cases, a phone call is enough to cancel your policy or stop insurance renewal. However, some insurance companies may require you to pay a cancellation fee and sign an insurance cancellation form or letter. You may be able to avoid paying the cancellation fee by waiting until the end of your policy and choosing not to renew.

When canceling your auto insurance, you should:

  • Confirm whether your policy will be canceled immediately, as some insurance companies require 30 days’ notice to cancel your car insurance without penalty.
  • Receive confirmation of your policy cancellation after your request has been processed.
  • Ask if you can receive a prorated refund if you've prepaid your premiums, or use the prepayments to cover any cancellation fee.
  • See if your agent can get you a lower price on your current policy, if your reason for canceling is to switch to a cheaper provider. You may qualify for discounts or consider changes in coverage limits that lower your premiums.

Other ways to cancel your car insurance include:

  • Meet with your agent in person: If your agent is independent, or not affiliated with any particular insurance company, they can not only help cancel your current car insurance policy but also help you find a new policy better suited to your needs.
  • Mail or fax a signed cancellation request: Writing a signed letter to your insurer with your full name, policy number and the effective date you would like your coverage to end should be sufficient to initiate a cancellation. Confirm with your carrier if any cancellation fee is required.
  • Request assistance from your new insurance provider: If you've switched insurers, your new carrier can help cancel your old car insurance policy. The new agent or provider will still need your signature, prior policy number and date of cancellation.

If you are canceling car insurance to switch to another insurance provider, such as canceling State Farm to join Geico, make sure you are already covered by Geico prior to initiating the State Farm cancellation. This ensures that you are always insured and avoids the risk of high out-of-pocket costs if you’re involved in an accident as an uninsured driver.

One challenge of canceling your car insurance and switching to another policy is that you'll have to make your first payment for your new policy before your old policy ends. This means you'll have to pay for coverage twice, though only temporarily — you can get a refund for unused premium, though it takes time for the process to go through.

You can make the process quicker and easier by:

  • Using a credit card for insurance payments: Refunds are usually processed faster on credit cards, and the money for your next bill won't come out of your bank account for about a month.
  • Opt for monthly payments: If your first insurance bill will be a financial burden, you may be able to opt for smaller, more frequent payments to make the initial price easier to swallow.
  • Save your quote for later: Car insurance companies let you save quotes to sign up for later, so you can wait until you've saved enough to cover the difference, then make the switch. Most insurers give you at least 30 days, but it can be much more — Progressive will give you up to 13 months, for example.

Canceling auto insurance without notifying your insurer

If you cancel your policy without notifying your insurer, or you stop paying your car insurance premiums, you may be subject to extra fees or even a failure to cancel your policy.

Reasons to notify your carrier of auto insurance cancellation:

  • While some carriers cancel your car insurance policy at renewal without payment, many offer an automatic grace period, which extends coverage beyond the end of your policy to give you extra time to pay missed bills. However, if the grace period passes without payment, the insurer may charge you for the coverage extension as well as nonpayment penalties.
  • If you pay premiums via an automatic bank transfer, insurers will continue to automatically withdraw payments from your account until you request cancellation.
  • Given that rates change all the time, you should fulfill any outstanding payments and cancellation fees to leave on good terms with your carrier. It's possible the insurance company may provide lower rates in the future, and a solid payment history would help you get your best rate if you decide to return.

It's always a good idea to notify your insurer of your plans to cancel auto insurance.

Do insurers charge cancellation fees?

Most insurance companies will not charge a cancellation fee for cancelling a car insurance policy or a specific coverage. However, some may charge a flat fee, usually less than $100, or a short rate fee for cancelling auto insurance early.

Insurers use a proprietary "short rate" to calculate their earned premium when policyholders cancel their car insurance prior to the policy's expiration date. The short rate is multiplied by the premium remaining on your policy.

  • A 15% short rate applied to a cancellation of a 12-month policy nine months after initiation would be 15% of the remaining 3-month premium.
  • A 10% short rate applied to a cancellation of a 6-month policy four months after initiation would be 10% of the remaining 2-month premium.

Some insurers let you avoid the cancellation fee if you wait to cancel until the date your policy is set to expire.

Can you cancel auto insurance at any time?

Yes, most car insurance policies allow policyholders to terminate coverage at any time. Cancellation typically requires a signed form or written notice of cancellation that includes the desired end date of the policy. You may have to pay a cancellation fee as well in rare cases.

Be sure to notify your insurer of the cancellation, since nonpayment can result in additional costs.

Reasons to change car insurance policies or providers

Cancelling car insurance is a good idea when you're planning to switch to a cheaper policy, one with more suitable coverage or both. Prior to switching, check with your current provider whether you are eligible for any discounts that may lower your premiums.

Adjustments to your coverage, such as lowering your coverage limits or getting rid of special equipment coverage after getting a new car that doesn't have custom parts, can also help reduce your overall costs and eliminate the need to cancel auto insurance. Be sure to discuss with your carrier any coverage changes that can lower your rates while still providing you with sufficient protection in the event of an accident.

It's always a good idea to shop around for cheap car insurance, since you may be able to find a better rate without having to change your coverage.

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