Like every contract people want to know if they can get out of it when they want or need. There can be many reasons for it and it is always a good idea under which circumstances you may be able to break an agreement, just in case. Naturally they want to know what they are supposed to do if they no longer own the vehicle or find a much better coverage at a cheaper price.
The good news is that you can cancel your auto insurance anytime. However, you may have to pay a fee for aborting it before its term and how much you pay depends on when you stop, policy terms and state laws.
In most cases, cancellation charges may not be enough to deter either because the policyholder doesn’t need it anymore or found much larger savings somewhere else. Not many people choose to change auto insurance mid-policy for a small saving. Commonly there are two ways to deal with overpaid money.
– Prorated Car Insurance Refunds
Companies using this method charge for the “time on risk” and return the unused portion of the premium back. Therefore, this is the most advantageous calculation for the customers. They simply divide it by the number of days in the policy, and they multiply the number they found with the number of days they provided coverage.
Carriers may choose this because it is fair or this may be what is allowed by state laws. Some states specify the way vehicle insurance refunds are calculated. In addition to using this, some may demand a fixed fee.
– Short Rated Refunds
This method is disadvantageous in comparison to pro rata “time on risk” calculation. It is designed to discourage people from aborting their coverage and penalize the ones that do. This can only be used when policyholders end it as opposed to insurers.
Short rate allows the carriers to keep a percentage of unearned premiums. In other words, they may add a percentage penalty on a pro rata method that reduces the amount to be returned.
Some companies choose to use a more punitive method. That is why you may want to check the wordings if there is a chance you may not need it for the full term.
Is Cancelling Monthly Car Insurance Easier?
People who pay monthly may be under the impression that they have an easy way out. It has nothing to do with the way you pay. No matter which payment plan you choose you have the same rights and the same rules apply to everybody.
If anything you may end up paying more if you don’t stop a monthly plan properly. Grace period for payment may allow it to run a bit more than the date you stopped paying. Due to grace period or not, paying for the time on risk, isn’t a fee charge but it is payment for coverage you had.
For example, it can cost you more money if you just leave it until the next installment. First of all, you would not get the refund for the days you left it running. Secondly, providers may be persistent and ask for the next month’s premium, rather than cancelling for non-payment. As a result, you may pay a bit more on top of anything else. And the carrier may report you to credit agencies if you fail to pay.
Do I Have to Pay to Cancel my Vehicle Insurance?
You enter into a contract with the carrier and usually breaking it results in penalties. At times, companies may wave it mainly because not much left to run. They may use different formula to determine how much to levy. Here are the two most commonly used methods.
- Some firms would calculate your refund on a pro rata basis and return all of the unused premiums. However, they may choose to add a small fee purely for administration. It would be usually $20 – $50.
- Others may use the short rated option to apply a percentage on the unearned premiums. So, this may mean that they get to keep a percentage of it that was payable if you were to keep it to the expiration date. Remember that full amount is considered due at the start, regardless of how you pay.
The good thing is that they will return any money you paid but not used. This normally means savings. However, you need to take the costs and benefits into account when you want to switch.
If you want to avoid paying any penalty you may want to wait until the renewal date to change providers. However, if you were saving enough money even after such charges you wouldn’t probably be bothered by these costs.
Remember that you need insurance to drive. That is why you may need to arrange alternative coverage and make sure that it starts either before or at the time the current one stops. Otherwise you may have a lapse that is seen by others when you are getting a quote. A record of lapse usually increases future quotes.
When you decide to end your association with the current carrier for whatever reason you should make sure that they know the decision. If you don’t inform them and stop the automatic payment arrangements you may have problems. So, you need to let them know and block the payment arrangements.
Don’t worry if a company kept charging you by mistake. They will return the money back in most cases once you show them that you have already bought another or you have sold your vehicle.
Now you know the score and you should consider pros and cons. Here are a few things you should know before terminating a policy. In any case, it is best to contact them and settle. Many people may be worried about paying additional amount when they contact the company and just hope that they will give up at some stage. However, you may get some money back because premiums are paid in advance.