A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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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, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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The short answer to this question is yes, if you meet certain criteria, you may be entitled to a refund for the unused portion of your insurance premium if your policy is cancelled. If your car insurance has been cancelled by the insurance company due to reasons other than lack of payment or you have personally cancelled your policy, in most cases you can receive a refund equal to the amount of the unused portion of the premium. There are different ways you must go about obtaining your refund depending on how and why your policy was cancelled. Be aware of what your contract says though, because some auto policies are nonrefundable no matter what the circumstances.

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Although it is possible to receive a refund for unused car insurance premiums, you need to know your rights, your contract, and the process for obtaining this refund. Your insurance company will not automatically hand over the extra money paid, in many cases, so you must know how to request it and what you can do if you have a dispute with the insurance provider.

What are the reasons why you may have your policy cancelled?

There are several reasons why your insurance might be cancelled either by you or your insurance provider. You could be entitled to a refund for the unused portion of your premium. These cases may include:

Auto insurer cancelled:

  • Failure to pay premium
  • Excess violations
  • Insurance fraud
  • Driving Under the Influence (DUI)
  • Suspended License

Policyholder cancelled:

  • Changing policies to receive a better insurance rate
  • Sold vehicle
  • Vehicle no longer in drivable condition
  • Policyholder deceased

Depending on which of these categories you fall into may determine if you are entitled to a refund and how you will need to proceed in order to receive it.

If your car insurance is cancelled in the middle of your term, you may be eligible for a refund of whatever premium you haven’t used. However, the amount you’ll get depends on whether it was you or your insurer who chose to cancel the policy, how much time you have left on the policy and the insurance company’s rules regarding refunds.

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When the insurance company cancels your policy?

Auto insurance companies can cancel your auto insurance policy for a variety of reasons including too many serious traffic violations, DUI, committing insurance fraud, or failure to pay your annual premium. In most cases when this occurs, you will receive a refund for the unused portion of your premium in the form of a check automatically sent to you. If you have not yet received this refund after ten business days from the date the policy was terminated it would be a good idea to contact your insurance company. Some companies will take longer than this; however, to process refunds.

If your policy has been cancelled due to lack of payment, you will not be receiving any money back and the insurance company could seek the services of a debt collector if you are well behind in your premium payments. Often, if your insurance company wants to end its relationship with you due to several violations, too many repair claims, or for various other less serious reasons, it will choose nonrenewal of your policy versus cancellation according to the Insurance Information Institute. In this instance, the company notifies you in advance that your policy will not be renewed once it has expired.

You will not be entitled to any refund because the policy will have continued through its ending date.

It is possible even if your policy was cancelled due to a reason other than lack of payment, you will not be able to receive a refund. Some insurance companies state in their contracts that policies are nonrefundable. If you were considered a high-risk to insure your provider may have listed this as one of the terms of your contract. If this is a concern of yours, make sure you read all of the fine print in your contract before agreeing to the policy. Additionally, you may be charged fees for failing to uphold your end of the contract by driving irresponsibly if your policy was cancelled due to an abundance of traffic violations.

What happens when you decide to cancel your policy?

If you choose to cancel your car insurance policy before the term is up you may still be able to receive a refund for the unused portion, but it may take more legwork on your part to get it. Most often, you will have to send a request in writing that you would like this money refunded to you.

This is one of the most common scenarios. You might have found a better rate elsewhere, are selling your vehicle or moving to another state. Generally, you will be eligible to get back most of your unused premium.

Like the prior scenario, you will not be able to receive a refund if your contract stated that the policy was nonrefundable. Make sure you thoroughly read your entire contract when applying for a policy. You may also be assessed an early policy termination fee or administration fee for cancelling your policy before the term was up.

However, some insurers state on their websites that they don’t charge a cancellation fee. While they might not charge you a fee to cancel, they might choose to short rate your policy. This means that they consider the first part of your policy term to be more costly because of the set-up costs such as determining your rates and handling paperwork. If this happens, expect to receive less of your total amount paid.

What is the cancellation process to follow when cancelling your auto insurance policy?

You will not simply need to request your refund in writing when you cancel your auto insurance, you will need to begin by notifying the company of your desire to cancel in writing as well. You will have to prove that you have obtained alternate car insurance. Since by law you are required to carry auto insurance for any vehicles you own that are driven on public roads, the insurance companies want to protect themselves from liability should you attempt to cancel your policy and then drive without proper insurance coverage.

After notifying your insurance company, you will need to notify your State Department of Motor Vehicles of your change in insurance.

There are certain circumstances when you do not need to show proof of alternative insurance. If you have sold the vehicle you were insuring, you could provide proof of this through the bill of sale. When selling your vehicle you should also have the buyer sign a Release of Liability form in case they fail to properly insure the vehicle after purchasing it. You may also cancel insurance and not get alternative coverage if the vehicle is no longer in drivable condition.

Make sure when you want to end your car insurance that you follow these steps to notify the company of your cancellation plans. Besides not getting your refund, if you simply stop payments, the insurance company will cancel your policy, may seek debt repayment, and the incident will count against your credit rating, which could impact your ability to get loans in the future.

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How much can you expect to have refunded?

Insurance refunds typically are issued based on the number of months left in the policy term year assuming you are paid in full for the entire year. To determine how much you pay per month divide your annual premium by twelve. Then multiply this by the number of months left in your term when you or the company cancels the policy.

If you are being assessed early cancellation fee or other fees for excessive traffic violations, you will need to subtract these fees from the amount to be refunded.

Can you receive refunds on insurance policies for those who are deceased?

There are many concerns that must be dealt with when a loved one passes away and with this and the grief you are dealing with auto insurance is often forgotten. The same refund situation; however, applies when an insurance policy is cancelled due to the policyholder’s death. Assuming the contract allows for it, those inheriting the estate of someone who is deceased can write and request an auto insurance refund for the months remaining on the policy. In this situation, proof of death and who is allowed to collect inheritance will have to be provided.

What if your auto insurers not upholding its end of the contract?

If you feel you are entitled to a refund and the auto insurer is refusing to issue one, you should begin by contacting an insurance agent or representative of the company directly and explaining your concerns with them. Ask to speak with a manager or someone at a level where they can research your situation and make decisions. If you continue to have difficulty settling the dispute, you can contact your state department of insurance for assistance. Most state departments of insurance have easy to follow links on their websites explaining several ways to contact them. Links to some of these are listed here for you to access.

If your state is not listed, you can easily find its insurance department through a web search.

When you purchase an insurance policy, make sure you read all of the fine print in your contract so that you do not find yourself unable to receive a refund in the event either you or the insurance company must cancel your policy.

Know your rights and know how to get a refund if and when you are entitled to one.

Start your search for a car insurance policy now simply by typing your zip code into our FREE quote tool found here!