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UPDATED: Mar 13, 2020
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You may find at times that you need to terminate your car insurance. There is no need for wondering when you can cancel, because canceling your car insurance is one of your rights as a consumer.
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There are many reasons why you would need to cancel your car insurance. Make sure that you follow the proper steps to cancel your policy correctly, so that you do not incur penalties or unpleasant consequences later on down the road.
Reasons Why You Might Cancel Your Insurance
Many drivers find one car insurance company, and then stick with that insurer almost indefinitely. Yet there are many instances that might necessitate changing your insurance provider. Other times, you may change your insurer purely out of choice. It is your right to do so either way.
First, you may have to cancel your car insurance policy because you don’t need it or you can’t use that insurance company anymore. If your vehicle has been totaled or it has broken down and you don’t intend to fix or replace it, then you can cancel your insurance policy to save money. Similarly, if you have sold your vehicle and don’t plan on getting a new one, then you can also cancel your car insurance policy.
In all of the above scenarios where you won’t be operating your car anymore, you will likely need to turn in your license plates to your state’s Department of Motor Vehicles.
Otherwise, it will look like you have a vehicle without insurance and that does not look good to new car insurance companies.
Many people are finding that they don’t need a vehicle to get around as much as they thought they did. Reasons such as using public transportation, wanting to reduce carbon emissions and looking for a way to get more exercise have led some drivers to give up their vehicles for other modes of transportation. However, if your vehicle is totaled, broken down, or sold, and you do plan to get another vehicle soon, then you should not cancel your current car insurance.
You might choose to cancel your car insurance with your present provider to go with an insurer that offers a better price or more coverage. You might also cancel your policy when you get married, and you are going to join your spouse’s policy. Some drivers switch out of protest of bad service or an unsatisfactory claim. If you find a better policy, then it is your right to cancel your insurance at your choosing.
Furthermore, you might also find that you can’t keep your current car insurance because you have moved, and your existing insurer is not licensed in your new state. If this happens, you will need to follow the steps outlined below on how to cancel your coverage so that you are not penalized.
Steps to Cancelling Your Coverage
When you cancel your policy, you need to make sure that you have no lapse in coverage. Never cancel your existing policy until you have another ready to start coverage. Once you find a new insurance company, then you can start the process.
First, decide what date you want your policy to end. You may choose a date, or you may just let your current policy expire. Schedule the start of your new insurance policy for the day after your old policy is to be cancelled or when it expires. Generally, you can set this date online if you want; though you can also instruct an agent on what day you want your new policy to start.
Make sure that you pay your initial down payment for your new policy so that you don’t forget. Call your current insurance company to let them know you want your policy cancelled on the day of your choice. Don’t be concerned that they may drop you if they find out you are cancelling your policy; they can’t!
Letting your current insurance company know that you plan to cancel can save you from any mix-ups that may refer you to your state’s DMV for not having car insurance coverage.
In addition, letting your current provider know why you are cancelling can hopefully help them to improve their service if you are leaving because of a customer service issue.
Penalties from Cancelling
Before you cancel your current car insurance, you need to understand what penalties that you might incur from following through. First, you will find that you can only get higher rates if you cancel your current policy without having another policy lined up. The National Association of Insurance Commissioners asserts that your prior insurance coverage is used in part to determine your premium. Even one day of a lapse in coverage can cost you more money when you try to get a new insurance policy.
Your insurance company may charge you an early cancellation fee, according to the Massachusetts Office of Consumer Affairs and Business Regulation. The cancellation fee penalty will likely be deducted from any refund that is owed to you from the insurer.
You need to make sure that any penalty does not wipe out savings from a new insurance company. If the fee is going to be more than the savings from a new insurance policy, you should wait until your current policy expires before switching. You can schedule the date for your new policy to start, and it should be the exact day after your current policy expires.
When an Insurer Can Cancel Your Policy
You have the right to cancel your insurance policy at any time. However, your insurance company can cancel your policy, but they are restricted to a set of instances when they may do so. According to the Insurance Information Institute, there are only a limited amount of reasons why an insurer can legally cancel your car insurance policy.
First, your car insurance company does have the right to cancel your policy at its choosing within the first 60 days of your policy.
This is to allow the insurer to double check the accuracy of your application, get your past driving history, and contact past insurers. If they find that you lied on your application or that you are a high-risk driver, they can cancel your policy within 60 days.
After 60 days, you have to be in the wrong for your auto insurance provider to be allowed to legally cancel your policy. The factor that is probably the most common for cancellation is non-payment. There is generally no grace period when it comes to your car insurance payment. Some providers might give you a day or two, but they are not obligated to give you extra time to pay your premium installment. If you fail to pay or your check bounces, your insurance provider can cancel your policy.
Additionally, your insurer can and will cancel your policy if you are guilty of fraud. If they uncover fraud from your application, such as you claimed that you don’t use your vehicle for business purposes when you actually do, they have the right to cancel. If you file a fraudulent claim, your insurance provider will definitely cancel your policy and likely refer your case to state prosecutors.
Lastly, your insurance company can cancel your coverage if your license has been suspended or revoked. If you have a slew of unpaid speeding tickets or you commit a serious offense such as DUI that leads to your driving rights being revoked, then your insurer will happily cancel you. At such a point, you will probably pose more risk than the insurer will want to take on.
Remember that while your insurance company can only cancel you under the above circumstances, they can also refuse to renew your policy for another six months or a year, depending upon your policy length. Generally, an insurer will take this route if you have too many accidents, tickets, other claims, or they suspect fraud.
Benefits of Canceling
While your insurer is restricted to cancelling your policy within 60 days or if you have committed fraud, stop paying or your license is revoked, you can cancel at any time. The industry regulators at the Texas Department of Insurance list cancelling your policy and receiving a refund of your unused portion as one of the many rights enjoyed by drivers in the state of Texas.
If you paid your premium in one down payment, you will receive a refund of your unused portion. If you pay in installments, you may or may not receive a refund; it depends upon how:
- Big your initial payment was
- Many installments remain in your premium payments
- Far along in your policy you are
Many car insurance providers require around 30% of your premium for a down payment.
If your policy costs $1,000 for six months, then each month of your policy will cost just under $170. If you have paid $300 for your initial payment, then you likely have five more payments of $140 each. Therefore, two months into your policy, you have paid $440 of your premium. One more month’s payment will have your premium half-way paid. If you cancel in the beginning or middle of your policy, you are more likely to receive a refund.
How Not to Cancel Your Policy
While you may be canceling your policy as a way to take a stand, you need to do it in the right way. You may be tempted to cancel if you are upset or feel cheated, but you must have a new insurance policy lined up, all set to go.
Also, don’t just stop paying your premium payments. Then, your insurance company will actually be cancelling you, and that can reflect badly on your record if you need to get coverage with another provider. If you are upset enough to cancel, let you insurance provider know calmly and logically why they are losing your business. Such a statement will make more of an impact than stopping payment without a reason why you are doing so.
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