There’s no point in paying too much for auto insurance. If you can buy the same amount of coverage from a respected insurer for much less than you’re paying with your existing insurer, making the switch seems like a sensible move.
Unfortunately, many people put off switching their auto insurance because they think that it will cost them time and money.
Switching auto insurance companies doesn’t have to be a difficult task. With all of the online comparison tools and resources that consumers have at their disposal, you can easily compare premiums and activate coverage elsewhere.
Unfortunately, there’s a chance that you could be stuck paying a penalty for changing companies. Here’s what you need to know about early termination penalties.
You Have the Right to Shop For Insurance in a Competitive Marketplace
Every driver needs auto insurance, and every consumer needs to find the right policy for them. You have the right to comparison shop coverage within a competitive marketplace. This is why you can solicit quotes for coverage through several insurers and you don’t have to pay a cost for the service.
The ultimate goal for anyone who’s comparison shopping is to find insurance through a financially stable company that has premiums at a lower cost.
If you find this, you might be tempted to postpone your mission to lower your premiums until your current policy term renews. Luckily, you don’t have to do this is you don’t want to.
All states give consumers who are buying insurance the right to cancel their own insurance policies at any time as long as they are the named insured on the policy.
If you’re both the driver and the policyholder, you can request that the coverage is terminated a week, a month, or even 6 months before the policy comes up for renewal. The insurance company can’t reject your request as long as the cancellation date you’ve selected is in the future.
Can the auto insurance company penalize you for switching your insurance?
Although most companies won’t use the word “penalty,” it’s very common for companies to charge you fees when you cancel your policy with them to switch to another provider.
Most state officials feel like cancellation fees are warranted when you cancel your insurance before the term is up.
Because cancellation fees range from reasonable to expensive, you should research how much it costs to cancel a policy before you sign up with a new company. Doing so can save you lots of money and stress down the line.
How much will the cancellation fee be?
When you’re looking to save money, you need to consider how much you’ll save, but you also need to consider how much you’ll pay in fees to get out of your current contract. There are two different types of fees that you can be charged:
- fixed fees
If you’re charged a fixed fee, it could range between $25 and $50. If you are charged a percentage, it’s a percentage of your unearned premiums that are left under the contract.
Some companies will only charge the percentage if there’s a large balance left on the policy and others charge the fee no matter how much time is left on the policy.
Why do state officials allow cancellation fees?
Officials feel like anyone who’s paying for insurance should be able to end the contract, but they do recognize the bind that cancellations put an insurer in. When insurance companies are doing actuarial research and setting their rates, they consider profitability and liabilities.
If some of the liabilities the company has on file cancel, they don’t collect everything that they anticipated that they would. This leaves the company short and affects their financial stability.
Allowing the company to collect a fee will cover some of the administrative costs incurred when they have to process the cancellation.
It’s very important to know the terms of your contract when you’re thinking about switching from one company to the next. You should know if you’re going to have to pay a fee to end your coverage and how much that fee will be.
You should also price the cost of auto insurance through popular carriers.