Like every contract people want to know if auto insurance policies can be cancelled anytime. There are many reasons why policyholders would want to stop their policies. 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 coverage 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, your insurer’s refund policy and state laws regarding cancellations.
In most cases, cancellation charges may not be enough to deter a termination either because the policyholder doesn’t need the policy anymore or found much larger savings somewhere else. Not many people choose to change auto insurance mid-policy for a small change saving. Commonly companies calculate refunds in two ways.
– Prorated Car Insurance Refunds
Companies using this method charge for the “time on risk” and return the unused portion of the premium back to the policyholder. Therefore, this is the most advantageous method of premium calculation for the policyholders. The insurer simply divides the premium charged 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 method because it is fair or this may be the method allowed by state laws. Some states specify the way vehicle insurance premium refunds are calculated. In addition, some companies may use this method to calculate the premium refunds but may charge a fixed cancellation fee.
– Short Rated Refunds
This method is disadvantageous for policyholders in comparison to pro rata method of calculating “time on risk”. It is designed to discourage policyholders from aborting their policies and penalize the ones that do. This method can only be used when the policyholder terminates it, as opposed to insurer cancelling.
Short rate cancellation allows the insurer to keep a percentage of unearned premiums. In other words, the insurer may add a percentage penalty on a pro rata premium refund calculation that reduces the amount to be refunded.
Some companies choose to use a more punitive method to calculate premium refunds. That is why you may want to check carriers’ refund and cancellation policies if there is a chance you may not need a policy for the full term.
Is Cancelling Monthly Car Insurance Easier?
Policyholders who choose to pay monthly may be under the impression that this would make it easier to terminate a policy. That is why often people ask questions like can I cancel my car insurance if I pay monthly? The answer is it has nothing to do with the way you pay. No matter which automobile insurance payment plan you choose you have the same rights and insurers apply the same rules to everybody.
If anything you may end up paying more if you don’t stop a monthly auto insurance policy properly. Grace period for car Insurance payment may allow your policy 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 cancellation charge but it is payment for insurance you had.
For example, it can cost you more money if you just leave it until the end of the month and stop paying the monthly premium. First of all, you would not get the refund for the days you left your policy running. Secondly, insurers may be persistent and ask for the next month’s premium, rather than choosing car insurance cancellation for non-payment. As a result, you may pay a bit more premium on top of charges. And the insurer 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 your insurer when you buy auto insurance. And usually breaking this policy contract results in penalties. At times, insurers may wave this penalty mainly because not much left to run on coverage. Insurers may use different methods to calculate how much to charge for ending the policy early. Here are the two most commonly used methods.
- Some insurers would calculate your premium refund on a pro rata basis and return all of the unused premiums. However, they may choose to add a small fee purely as an administration charge. It would be usually $20 – $50.
- Others may use the short rated method to charge a percentage on the unearned premiums for a policy termination. So, this may mean that the insurer gets to keep a percentage of the premium that was payable if you were to keep the policy to the expiration date. Remember that full premium is considered due at the start, regardless of how you pay.
The good thing is that they will return any premium you paid but not used. This normally means savings. However, you need to calculate the costs and benefits when you want to switch insurers.
If you want to avoid paying any penalty or charge you may want to wait until the renewal date to change insurers. 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 your vehicle. That is why you may need to arrange an alternative coverage to replace the policy to be terminated. You also need to make sure that your new policy starts either before or at the time the current policy stopped. Otherwise you may have a lapse in auto insurance that is seen by other insurers when you are getting a quote. A record of lapsed coverage usually increases your premium quotes.
When you decide to end your association with your current insurer for whatever reason you should make sure that they know your decision. This may be an early termination or a non-renewal. If you don’t inform the company and stop the automatic payment arrangements you may have problems or the company may continue charging you. So, you need to let them know and block the payment arrangements.
Don’t worry if an insurance 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 policy or you have sold your vehicle.
Can you change your auto insurance at any time? Yes, you can. However, you should consider pros and cons of terminating your current policy. Here are a few things you should know before terminating a policy. In any case, it is best to contact your insurer and settle with them. Many people may be worried about paying additional amount when they contact the insurer and just hope that they will give up at some stage. However, you may get some money back because premiums are paid in advance.