Can a car insurance company charge a cancellation fee?

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Things to know...
  • Car insurance companies do business with policyholders by selling their products for policy periods
  • The policy periods that are available for auto insurance will either last for six months or one year
  • When you have a policy and you’re the named insured, you can request the coverage be canceled at any time
  • Whether or not you’ll pay a fee or penalty depends on your state and what the company’s procedures are
  • The cancellation fee that you’re charged is a short-rate fee and it’s standard for it to be deducted from your balance

It’s never fun to pay a fee just to end a contract with a company you no longer want to do business with. Sometimes, contract holders will stay with a current company just because they don’t want to pay a fee to break their contract.

When it comes to your auto insurance, the last thing that you want to do is stay with a carrier that’s overcharging you just because you don’t want to pay a fee.

With all of the different ways that you can get auto insurance quotes today, it’s easy to request quotes and see if you’re really paying too much for your insurance. Enter your zip code above to compare quotes today.

You don’t have to put off shopping around just because you’re worried about a cancellation fee. Before you assume that you’ll be penalized for switching insurers, here’s what you need to know about cancellation fees:

How long does your auto insurance stay active?

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Your auto insurance isn’t active until you submit your application with an effective date and a payment.

You don’t have active insurance when you simply request a quote. After you’ve applied and you’ve been issued a temporary binder, the policy will remain active for the remainder of the term.

Auto insurance terms last for either six months or 12 months at a time. This is how long the policy will remain active if you never take the steps to renew your coverage with the same carrier.

If you do renew your policy term after term and you pay your premiums on time, you could keep the same policy active for years.

Can you cancel your policy while it’s in an active term?

You can either let your term expire if it’s nearing the expiration date or you can cancel your insurance during the policy period. When you don’t feel like waiting weeks or months to end your contract with your insurer you can cancel it.

It’s not like other types of contracts where you’re bound to stay with the company for years. You have the right to cancel your insurance at any time if you’re the person who purchased the contract under your own name.

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Will you always be charged a fee for canceling early?

If you do exercise your rights to cancel your current policy period early, you may wind up paying at least a minimal fee just for ending the contract.

It’s not a mandatory charge, but it’s one that you should check and see if you’ll be charged before you make any quick decisions to switch insurers.

Whether or not you have to pay a cancellation fee will be based on where you live, what type of policy you are carrying, and the provider that is selling you protection.

There are states that won’t even allow licensed insurers to charge a fee for consumers to exercise their consumer rights when canceling insurance policies.

There are, however, other states that do allow the practice. That’s why you’ll have to look at the Bill of Rights in your state via the official website.

How can you tell if you’re going to be charged a fee?

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All insurance companies have to detail charges you’ll have to pay for certain things. This information is detailed within your auto insurance policy contract. The contract also tells you what is not covered. These factors are called exclusions.

You should always have a copy of the contract on hand if you ever have any questions about your policy.

As you’re looking for information about cancellation fees, you should look for the following terms:

  • Short-rate – If your policy says that your refund will be short-rated after you request a mid-term cancellation, you will be paying some sort of cancellation penalty.
  • Prorate – If your policy uses this term, no fee is being charged and you’ll get your full refund.

How much is a cancellation fee?

If you’ve discovered that your insurer is going to charge you a fee, knowing how high that fee is going to be will make the difference as you compare insurance rates. You could save $100 per year by buying a new policy, but it doesn’t do much good if your cancellation fee is $100.

How much your fee is going to cost you is based on how the fee is charged. If you’re charged a flat rate fee, you know just how much it will be from the start. It could be $25 or upwards of $75 depending on the company.

If it’s not a fixed fee, you’ll be charged a percentage of your balance that’s still owed. If you have a lot of time left on a high premium policy, that fee could be large.

If you pay your premiums in full, your fee is deducted from your refund before you ever see a check. That’s how the company ensures that the fee is paid. If you’re on an installment plan, the fixed fee or the percentage will be added to your last invoice.

The balance due will be prorated based on how much coverage you actually used.

How do you cancel your insurance?

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Canceling your insurance isn’t difficult. If you’re doing business with a company with an online system, you may be able to make the request online by signing into your account. Some companies want a signed written request.

You’ll have to check and see with your insurer to determine what you need to do so that the request is processed on the date you ask it to be.

In short, a company can charge you a cancellation fee if you try and end your policy before the term is up. That doesn’t mean that the company will for sure assess the fee.

Don’t put off your mission to find low-cost insurance. If you need quotes, use our free rate tool and calculate the savings. If you’re saving more than you’re charged, it’s worth making the switch.

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