Car insurance premiums are almost always refundable, if there is any money left to be returned after a cancellation or coverage adjustment. Insurers will only charge for time on risk, deduct any cancellation fee (if any) and return the rest of the premium paid in advance if a policy is terminated before its time. Besides, there are rules in every state that regulate how policyholders’ money is handled.
Companies encourage motorists to pay premiums in full with discounts. However, a few people don’t like to pay upfront because they are not sure if they would get a proportionate refund if they cancel auto insurance policies. Vehicle insurers are pretty efficient about returning unused portions of premiums back to policyholders. That is why motorists can choose the most beneficial payment method without worry.
Furthermore, many companies including Progressive, State Farm, GEICO don’t charge any cancellation fees and send full refunds on car insurance to their customers in most states and most circumstances.
Policyholders normally pay premiums in advance no matter which payment method they use. For example, even if you use a monthly payment method, you would be paying for the months ahead in advance and almost never in arrears. So, the chance of receiving a refund after a policy cancellation is high. It would be a large premium refund if you made a full payment already and it may be a small amount if you were paying in installments.
Nevertheless, you may actually owe a small amount, especially if your provider charges a cancellation fee. That is why motorists should always call their carriers and tell them the exact date they want their policies stopped, instead of stopping automatic payments and expecting the carrier to cancel the policy as a result. It is best to settle with your provider properly once you terminate the relationship.
There are several circumstances in which policyholders may want to cancel their automobile insurance policies before it expires or reduce coverage. Depending on how much of the premium they paid, they may be entitled to a refund on auto insurance.
They may want to cancel a policy because they found better or cheaper coverage from another provider. In such cases, they need to contact their current carriers and tell them when they want to stop the policy. If they have already paid the premium in full and there is still a long time to go to the policy expiration date, they would get back the premium they paid in a timely manner. If they were paying in monthly installments and close to the next installment, they may have already used up the premium they paid so far and therefore they may not get any car insurance refunds.
Selling the vehicle insured is another reason policyholders want to cancel their policies. If they aren’t buying another vehicle anytime soon, it may make sense to cancel the coverage and get a refund on vehicle insurance. Otherwise, they can actually use the policy for the old car for the new. Their insurers would recalculate the premium difference arising from the different make, model, age and value car and either ask additional premium, offer a refund or add credit in their account for the premiums due back to be used for future premium payments.
Moving to another state is another reason motorists or insurers may cancel a policy. If you are staying with the same insurer, they would cancel the old policy and start a new one that complies with the rules of the new state. If the premium was paid in full for the old policy and the new policy is cheaper, they would send a refund for the difference or add a credit in the account for the refund amount.
Auto insurers would issue a refund automatically if they cancel a policy for whatever reason, except for non-payment. If there are any unused premiums, companies usually return the money by the method they collected. For example, if the premiums are paid by Electronic Funds Transfer, the refunds would be done the same way and if it was made by card, they would receive the funds back on their cards.
Also, vehicle insurance companies refund premiums paid by mistake without much hassle. For example, if someone arranged a new policy several months back and realized that his old policy hasn’t been cancelled somehow, they should contact the company, explain the situation and ask for a refund. Normally, they would want proof that you had another policy all along and send you a vehicle insurance refund once they are convinced the policy was allowed to run on by mistake.
Calculation of Automobile Insurance Refunds
Although they may vary slightly, vehicle insurers usually work premium refunds on a pro-rata basis. They calculate the time on risk and charge for it. Any unused portion of the premium is returned to the policyholder. For example, if the full premium is paid on a six month policy and it is cancelled 3 months later, the policyholder would get an auto insurance refund for the remaining 3 months, minus any cancellation charge.
It doesn’t take long to get the money back either. Many companies send the money back within a week. Some of them may have marginal cancellation charges of around $20. However, they may have included it in “time on risk” calculations already.
Getting a discount for full payment is mostly to do with finance costs. They are unlikely to add this discount back when you cancel halfway. Even if they do, they can only apply it to the unused portion of the premium. Even if there is a small cancellation fee, there is a high chance people save by switching carriers or dropping coverage that these little charges won’t bother them.
A few motorists are known to prefer installments and incur additional costs because they think they may switch before the coverage expires. There isn’t a real benefit of taking this route as most people let policies run the full term and they would get their money back if they decide to switch anyway.
Motorists can cancel auto insurance policies whenever they want or need without a worry about their money. Quite a few policyholders do so because they found a better deal somewhere else. It is an everyday event and just part of the business for insurers and they already have a process in place to deal with cancellations. You just have to inform them in the fashion they prefer as to when you want them to end the coverage.