If you’re thinking about switching your auto insurance policy, it’s important to compare other premiums to find the best deal.
Wise consumers will take time out of the day to find reputable carriers that have competitive rates, but before you start writing your cancellation request, make sure you’re prepared to be charged a fee.
Not all car insurance companies charge cancellation fees, but many do. The fee might not be exorbitantly high, but it’s still an expense that you should factor into the equation when you’re trying to lower your insurance costs.
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Here’s a guide for consumers who want to familiarize themselves with personal auto insurance cancellation fees:
Your Right to Cancel Your Auto Policy
You should never go without auto insurance. As long as you own a vehicle, you need to have an active auto insurance policy in effect.
While having continuous auto insurance is a must, you have the right to cancel any personal auto insurance policy that you own at any time and for any reason. This right is granted to you in the rules written in the state’s Consumer Bill of Rights.
Timing is the key whenever you’re canceling a policy. If you’re selling your car, you’re surrendering your license plates, you’re moving out of state, you’re relocating overseas, or you’re switching carriers, you shouldn’t rush to cancel the policy immediately.
If you’re not sure when you should submit your cancellation request, the rule of thumb is to wait until you’re no longer legally required to maintain coverage.
If you’re selling the car, you should cancel the coverage after you have a signed bill of sale and you submit a release of liability form. If you’re switching carriers, always wait until the new policy takes effect so there are no gaps that can hurt you.
Will you be charged fees for canceling your insurance too early?
If you’re still accountable for carrying insurance in the state’s eyes, canceling your policy too early can cost you fees through the state. Even just a small one day or one week lapse can lead to the suspension of your registration.
Some states will also suspend the owner’s license for failing to maintain coverage.
While you might not worry about it when you sell your car, it could pose problems with your buyer because the fees must be paid before the registration can be reinstated and then transferred.
It’s best for you to pay the fees to reinstate your license plates before it ruins a sale that you had already secured.
It’s possible to still be assessed a fee even if you don’t have a lapse in coverage. If you cancel your policy on the same day that your new policy takes effect, it could cost you in the form of a cancellation fee.
Some insurance companies charge cancellation fees when policies are canceled at the policyholder’s request. The amount you’re charged depends on the company’s policy.
There are two different types of fees that you can be assessed.
- Some companies will charge a fixed fee for a cancellation that’s initiated because of your request. This fixed fee ranges between $25 and $50, depending on the carrier.
- Other carriers will charge a percentage of the unearned premiums unless the policy is up for renewal in the near future.
What are unearned premiums?
When your auto insurance policy is issued, you will receive an insurance declarations page that details what your policy premium is.
If you pay these premiums in installments, the owed premiums will go down each month. As coverage is afforded, the premiums are earned. Unearned premiums are those that are due on the policy but that the company has not yet earned.
If your insurer charges a fee, you’re still entitled to receive a refund for the premiums that haven’t been earned. If you pay quarterly and you only use a month’s worth of coverage, you’ll receive a refund for the two months of premium that hasn’t been earned.
If you’re assessed a fee, the fixed fee or the percentage of the remaining premiums that are due will be deducted from your refund.
The last thing that you think of is that you could be billed for coverage that you no longer have. Unfortunately, you can still owe the carrier money if you cancel close to your due date or during your grace period.
When this happens, you can get a bill for the premiums that were earned plus the cancellation fee.
Contact Your Auto Insurance Company Before You Make the Switch
You should contact your agent to ask if the carrier will charge you a fee for submitting a cancellation request before your renewal runs. Before you decide to make the switch, you should see if the fee outweighs the savings.
If you’re not saving more than you’re paying, it’s better to wait.
You can’t make an informed decision without getting auto insurance quotes. If you want to compare rates from carrier to carrier, you don’t have to make several different contacts.
Instead, you can use an online insurance quote tool that’s designed for quick comparisons. Simply enter your zip code, your vehicle information, and driver information so that you can get instant quotes.