Auto Insurance Refunds: What You Need To Know

If you cancel your car insurance policy before the end of the term, you will typically get a refund. The amount of the refund will depend on how much you've paid in advance, and whether there are any cancellation fees or short-rate premium penalties. If you've paid for your policy in full and cancel mid-term, you're entitled to a refund for the remaining months you won't be using. If you pay your premiums monthly, the refund will be smaller, typically less than 30 days' worth.

Cancelling your auto insurance policy mid-term

Understand the Reasons for Cancellation:

Before initiating the cancellation process, it's essential to consider your reasons for cancelling. Common reasons include finding a better rate, selling your car, moving to another state, or dissatisfaction with your current insurer's service.

Purchase a New Policy:

It is highly recommended to secure a new auto insurance policy before cancelling your existing one. This will help you avoid a lapse in coverage, which can lead to higher rates in the future and may be illegal in your state. Contact your new insurer and finalise the new policy to ensure a seamless transition.

Contact Your Current Insurer:

Get in touch with your current insurance provider to understand their specific cancellation procedure. This can usually be done through a phone call, email, or their mobile app. Ask about the step-by-step cancellation process, required documentation, potential costs, and penalties.

Provide Necessary Documentation:

Some insurers may require a formal letter of intent to cancel or a specific cancellation form. This documentation typically includes details such as your policy number, name, and desired cancellation date. If you have prepaid your policy, you may also include a refund request for the unused portion.

Send Proof of New Insurance:

If you are switching to a different insurer, your current insurer may request proof of your new coverage. This could include providing the name of the new insurer, your new policy number, and the effective date of the new coverage.

Finalise the Cancellation:

Once you have all the necessary documentation in place and your new policy is active, it's time to formally cancel your old insurance policy. Be aware that your current insurer may charge a cancellation fee, and you may be eligible for a refund on any prepaid premiums.

Remember to carefully review your reasons for cancellation and understand the potential financial and legal implications. By following these steps, you can effectively cancel your auto insurance policy mid-term while minimising any potential disruptions or issues.

Getting a refund if you've paid in full vs. in instalments

If you've paid your auto insurance in full and cancel your policy before the end of the term, you will typically get a refund for the remaining time in your policy. The amount of refund depends on how much time is left in your policy. For example, if you paid $1,200 for a one-year policy and cancel after four and a half months, you may be eligible for a refund of $750.

On the other hand, if you've been making monthly payments, your refund will be based on how many days you have left in your billing cycle. In this case, if you cancel after four and a half months, you may only be entitled to a refund of around $50.

It's important to note that some companies may charge a cancellation fee, which will be deducted from your refund. Additionally, insurance companies may also short-rate your policy, considering the first part of your policy term more expensive due to setup costs. This could result in a lower refund than expected.

If you've made changes to your policy that reduce the cost, such as lowering your coverage limits or removing a driver, you may also be eligible for a refund. In this case, contact your insurance company and request a refund if you want the cash back immediately. Otherwise, they may keep the extra money and apply it to your next bill.

Cancelling your policy before it ends

Cancelling your auto insurance policy is a relatively simple process, but it's important to do it properly to avoid a lapse in coverage, which could result in higher future rates and fines from the DMV. Before you cancel, it's a good idea to secure a new policy to ensure you're still complying with your state's insurance laws.

When you cancel your policy, the refund amount will depend on how much you've paid in advance and whether there are any cancellation fees or short-rate premium penalties. If you've paid for your policy in full upfront and cancel before the end of the term, you will typically be entitled to a refund for the remaining time on your policy. However, if you've been making monthly payments, your refund will be smaller as you would have already paid for the current month.

For example, if you have a one-year, $1,200 car insurance policy and you've paid in full, but cancel after four and a half months, you may be entitled to a refund of $750. On the other hand, if you've been making monthly payments, you may only get back around $50.

It's worth noting that some insurance companies may charge a cancellation fee, which will be taken out of your refund. This could be a flat fee or a percentage of the unearned premium, typically around 10%. Additionally, some companies may short-rate your policy, which means they consider the first part of your policy term more expensive due to setup costs, resulting in a smaller refund than expected.

To cancel your policy, simply call your insurance provider and provide them with the necessary information, such as your policy number and the reason for cancellation. They may ask you to fill out a form or provide additional information, so make sure to follow their instructions carefully.

Remember, it's important to have replacement coverage in place before cancelling your current policy to avoid any gaps in coverage, which could lead to higher premiums in the future.

Making a change to your policy

Making a change to your auto insurance policy is a straightforward process. You can make changes to your policy at any time, and it's important to be aware of any related fees. Changes to your policy usually take effect immediately.

To make changes to your policy, such as adjusting coverage limits or adding another driver, you can call your insurer's customer service number or speak with your local agent. For minor adjustments, like adding or removing vehicles or drivers, you can often make these changes through your insurer's website or mobile app. You may be required to pay for any increase in your premium upfront.

If you want to reduce the cost of your coverage, you can make changes to your policy, such as reducing your policy limit or the number of vehicles or drivers covered. For example, you may choose to remove a teen driver from your policy or drop comprehensive and collision coverage on an older car. If you make changes that reduce the cost of your policy, you may be entitled to a refund from your insurer for the remaining time in your policy.

If you're thinking of making changes to your auto insurance policy, it's a good idea to review your current policy first and check for any fees for making changes or cancelling your policy. You should also ensure that you have a new policy in place before cancelling your old one to avoid a lapse in coverage, which could result in a rate increase, license suspension, fines, or repossession of your vehicle.

Your insurer cancels your policy

If your insurer cancels your policy, you may still be entitled to a refund. However, this depends on the reason for the cancellation. If your policy is cancelled due to non-payment, you are unlikely to get a refund and will probably still owe your insurer money.

On the other hand, if your insurer cancels your policy for other reasons, such as a DUI conviction, too many tickets or accidents, or a change in your risk profile, you will likely be entitled to a refund for the remaining time on your policy. In this case, your insurer will send you a prorated refund, minus any cancellation fees.

It is important to note that the process and requirements for cancelling your auto insurance policy may vary depending on your insurer and your state's laws. Therefore, it is always a good idea to carefully review your insurance policy and contact your insurer to understand their specific cancellation policy and procedures.

Frequently asked questions