Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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UPDATED: Sep 20, 2021

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Here's what you need to know...

  • If you don’t intend on paying your insurance policy in full, some companies will require a down payment of either one or two months of the policy premium
  • Consumers who are buying insurance through a broker should verify how much of their payment is being applied to a down payment and how much of it is being applied to the brokerage fee
  • When paying a car insurance deposit, the amount paid upfront will be applied to the premium amount due to reduce future payment options for the payment plan selected
  • As a customer, you have the right to cancel your policy at any time during the policy period
  • If you do cancel your policy mid-term, the company may charge an early cancellation fee instead of returning all of the premiums you haven’t used up
  • If you’re offered a pro-rated refund, all of your deposit that hasn’t been used will be returned to you as long as you didn’t pay a brokerage fee when you started your policy

Setting up a policy doesn’t only cost you money, it also costs the insurer money. That’s why a driver has to submit an application in order to receive service. All applications for coverage are thoroughly reviewed and underwritten by professionals to assess risk.

During this phase, the underwriter will check to see if the answers that you gave were honest and accurate. They will run various reports, verify your license status, check the VIN and may even require you to provide pictures of your vehicle to check for existing damage. Insurance must pay for the reports and also for the man hours spent to process applications and issue policies. That initial deposit pays for all of these work hours.

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Since there are administrative costs behind issuing a policy, some carriers still charge any driver who applies an upfront deposit before they’ll activate a policy. In most cases, this deposit is used to cover administrative costs associated with selling insurance. While the deposit is deducted from your premium balance, it’s required upfront before coverage is afforded. Since the company is holding onto your money, it’s only natural to wonder if you’ll get your deposit back if you terminate your policy.

How much is a deposit for insurance?

How much you’ll be required to pay down to activate coverage depends on the state and the carrier that you’re choosing. Since there’s more than one option in terms of providers to choose from, the scope of pricing ranges.

There is now a long list of carriers offering ‘no deposit’ products, but there’s still a sizable list of companies that like the security that comes with a down payment.

It’s common for a state to allow carriers to charge a 30% deposit premium or less to obtain or renew a policy. Other states may allow no more than 2 months of premiums to be collected in advance. Keep in mind that consumers who have failed to pay their premiums in the past may be required to pay a higher deposit. This is because some carriers will classify applicants with lapses in prior coverage as high-risk drivers. You always want to make sure you can afford your monthly payments.

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Is a deposit the same thing as a broker fee?

If you do decide to obtain insurance from a company that requires a down payment or upfront deposit, it’s important that you differentiate that charge from a broker fee. Not all insurance companies pay brokerage fees. In fact, only applicants who request quotes from a licensed broker and then apply for one of the quotes will actually pay a fee for the broker’s services. Deposit goes towards the coverage you’re paying for and broker fees go in the broker’s bank account.

How do you know if you paid a deposit or a broker fee?

The fees that a broker can charge are regulated by the state but vary from professional to professional. If you’ve done business with a broker rather than an exclusive agent, there’s a chance that you won’t get some of the money that you’ve paid into securing your coverage back. Since all brokers must get your consent to charge a fee under the fee disclosure, you can easily see what won’t be refunded to you if you cancel.

What’s a common broker fee?

Licensed brokers decide how much they want to charge for their services. They may charge you during the application period, and also when you call them up to make changes to your policy. It’s not out of the norm for a broker fee to be around $250 for applications and around $50 to $100 for policy changes.

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Can you cancel your policy mid-term?

As a policyholder with the authority to make changes to your policy, you’re free to cancel your policy at any time during the term. This is true regardless of the payment plan that you choose at the beginning of the term. If you submit a cancellation request because you’ve sold your car or you’ve decided to switch carriers, you’re fully entitled to receive your unearned premiums back. If you’ve paid a deposit, this might be included. However, there are also reasons why you may not get that initial payment back.

Can a policy be cancelled without your permission?

Auto insurers, on the other hand, can’t cancel your policy for any reason. After you’ve made it past the binding or probation period, your policy can’t be terminated for filing a claim or getting a ticket. These rules have been put in place to protect you as a consumer; you aren’t able to be punished for your driving record changing once you have service through a company. Some of the reasons an insurer can initiate a cancellation include:

  • Non-payment of premiums
  • Fraud on your application
  • Filing a fraudulent claim
  • License suspension or revocation
  • Diagnosis of a disability that makes you a risk to drive

These are some of the few reasons why your entire policy might get cancelled with your current insurer. Even if you’re in the middle of a policy term, they still have the right in these cases. And in some of these cases, there may not be any refundable deposits.

Will you get a deposit back when being cancelled for non-payment

If you’ve received a policy notice that your policy will be cancelled for non-payment, you’ll be given a 10 day grace period explaining when your policy will cancel.

Your grace period may be a bit longer if you have a down payment that is going towards your entire premium. Since the payment is applied to the premium cost, you won’t be entitled to any money back when your coverage goes inactive for failing to pay your upcoming installments. It’s considered spent money in this regard, since the company will want to make back some of the missing finances.

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Will the company charge you for cancelling your policy early?

You’re entitled to get deposits back if they haven’t been used to fund the policy, but some of your unearned premiums may be used to cover early termination fees. Not all companies charge a short-rate fee for cancelling a policy before the term is up. Those that do will charge a flat fee or a percentage of the premiums that are still due.

You’ll need to check to see if this is allowed in your state and how much your carrier charges before switching carriers mid-term.

Companies all do business in unique ways. If you are shopping for auto insurance or you’re contemplating making a switch, it’s important to consider more than price. You should look at the company’s payment plan options, their customer satisfaction ratings and their financial strength. Doing all of this will afford you peace of mind when it comes to committing to a policy, and could end up saving you more than a few dollars in the long run.

After you’ve taken the time to compare carriers you can compare pricing by using an online rate comparison tool. Getting an online quote is the best place to start if you have questions. Enter your information, choose a payment plan, and see if a deposit is required to start your policy. Just mind that you’re looking into reputable companies and not just those who are after your money. You can do this by not just looking for the cheapest rates, but by what a company has to offer you as a customer, and what they’ll expect in return. Enter your zip code in our FREE tool below to start comparing car insurance rates now!