Do you have to pay to cancel your car insurance?
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UPDATED: Oct 18, 2021
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- If you no longer need your insurance or you’re switching to another company, you can request that your policy is canceled
- By law, insurance companies must comply with the Consumer Bill of Rights. So consumers are free to cancel their insurance at any time
- Most insurance companies require their customers to submit their cancellation requests in writing
- When you request cancellation, it’s possible that the company could charge a fee or charge you for the time that elapses before your policy is fully cancelled
- If you’re charged a cancellation fee, it will be subtracted from any refund that you’re owed
If you’re thinking about switching your auto insurance policy, it’s important to compare other premiums to find the best deal. You may find your current policy is the cheapest option. Not all consumers go with the cheapest insurance company, though. There continue to be multiple considerations such as customer service and coverage.
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. Even if the fees are small, unexpected hassles at the very end can have a big impact.
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Here’s a guide for consumers who want to familiarize themselves with personal auto insurance cancellation fees:
Do you have the 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. Some drivers fall victim to the misconception that they’re locked in until the end of their policy contract. So if you’re on a 6 month policy, they assume they can’t cancel until the policy ends (at which point insurance companies generally auto-renew). Insurance companies can only issue a cancellation notice under certain circumstances, and they have to send you advanced notice. You can cancel at any time, and companies cannot charge exorbitant fees or hold your excess insurance premiums for too long.
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. Even a day without auto insurance coverage could be disastrous if you get in an accident on that day.
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. Paying for a little extra coverage is better than not having enough.
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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. Your insurance company can only charge you legally allowable fees. The state can charge fees associated with a lapse in coverage.
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. 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.
You can still be assessed a fee even if you don’t have a lapse in coverage. The state goes off who the car is registered to now in many matters. 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 premiumsare earned. Unearned premiums are those that are due on the policy but that the company has not yet earned. These would be eligible as a refund if you were to cancel your auto policy early.
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.
Of course, if you cancel by just not paying your premiums, you may face other complications including higher premiums when you get a quote from another insurance agent. So it’s best to go through the official process.
When do you have to contact your insurance company to cancel?
You should contact your agent before you cancel to calculate your true savings. States have strict laws on what insurance companies can charge. If companies cancel a policy early and they have unearned premiums, they have to return the whole of the unearned premiums. If you cancel early, insurance providers have more leeway. Any fees charged still have to be reasonable.
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.