Canceling Auto Insurance: Fee Or Free?

Whether you're selling your car, switching providers, or simply no longer need it, you can cancel your auto insurance at any time. However, depending on your location and provider, you may be charged a cancellation fee. This can be a flat fee, usually between $20 and $50, or a short-rate fee, which is a percentage of the remaining premium. It's important to check with your insurance company about any fees, cancellation letters, or notice periods required before cancelling your policy.

Cancellation fees

Flat fees can range from $20 to $50, while short-rate fees are usually 10% of the remaining premium. For example, if you cancel a six-month policy after three months, you would owe 10% of the premium for the remaining three months.

Some insurers may also use a "short-rate" calculation to determine the refund for the unused portion of your policy. In this case, you may receive less than the prorated refund amount, with the difference acting as an indirect cancellation penalty.

It's important to note that not all insurance companies charge cancellation fees. GEICO, State Farm, and Nationwide are examples of major insurers that typically do not charge a fee for cancelling auto insurance.

Before cancelling your auto insurance, it's recommended to review your insurer's specific cancellation policies and procedures to understand any potential fees and ensure you follow the correct process.

Reasons to cancel

There are several reasons why you may want to cancel your auto insurance. Here are some valid reasons for cancelling your auto insurance policy:

• Switching insurance companies: You may find a better deal with another insurer, or your current insurer may have provided you with an unpleasant experience.
• Moving to a new state: Each state has different minimum car insurance requirements, so you will need to ensure your policy complies with the laws of your new state of residence.
• Moving within the same state: Even if you are not moving to a new state, insurance companies partially set rates based on where you live. You may find a better rate with another insurer in your new location.
• Changing vehicles: You may find better insurance rates for your new vehicle with a different insurer.
• Changing coverage: You may want to change your coverage, such as dropping comprehensive coverage or increasing your liability coverage.
• Moving out of the country: If you are relocating abroad, you will need to cancel your existing auto insurance policy.
• Selling your car: If you sell your car and do not plan on replacing it, you can cancel your auto insurance. However, it is recommended to wait until the new owner takes possession and the title is transferred before discontinuing coverage.
• Being covered under someone else's policy: If you are covered under someone else's insurance, you may no longer need your own auto insurance policy.

It is important to note that cancelling your auto insurance may result in a cancellation fee, and having a gap in coverage can lead to higher rates when you purchase a new policy in the future. Therefore, it is advisable to have a new policy in place before cancelling your existing coverage to avoid any lapse in insurance.

When to cancel

There are several reasons why you may want to cancel your auto insurance policy. Here are some scenarios where cancelling your auto insurance may be a good idea:

• When you no longer own a car: If you sell your vehicle and do not plan to replace it, you can cancel your auto insurance. However, it is recommended to keep your insurance until the new owner takes possession and the title is transferred. It is also important to check with your local DMV about any specific requirements, such as turning in your license plates. Alternatively, if you plan on getting a new car within a few months, you may consider converting your policy to a non-owner policy to avoid a lapse in coverage and maintain any discounts you have earned.
• When you move to a new state: If your current insurance company does not offer coverage in your new state, you will need to switch to an insurer that does. It is important to arrange for the new policy a few weeks before ending your current policy to avoid a lapse in coverage. Some states may also require you to surrender your license plates before cancelling your current policy, so ensure you are compliant with the specific requirements of your state.
• When you find a better deal: If you find a more affordable policy or a company that offers better rates, you may want to switch your auto insurance provider. It is generally recommended to secure a new policy before cancelling your current coverage to avoid a lapse in insurance, which can lead to higher rates in the future.
• When you want to reduce your coverage: If you own an older vehicle outright, you may consider dropping optional collision and comprehensive coverage. However, it is important to note that doing so means you will have to pay out of pocket if your car is damaged or stolen. This would be considered a policy amendment rather than a complete cancellation.
• When selling your car: You can cancel your auto insurance after selling your car, but only once you have signed over the title to the new owner, completed the bill of sale, and submitted any necessary notices to your state's Department of Motor Vehicles. Cancelling too soon may result in legal repercussions, such as fines or a suspended license.

It is important to remember that cancelling your auto insurance should be done strategically to avoid potential legal or financial issues. Always ensure that you have a plan for being without coverage and consider securing a new policy before cancelling your current one to avoid a lapse in coverage.

How to cancel

Before cancelling your auto insurance, it's important to understand the potential consequences. Firstly, if you cancel your auto insurance without having another policy in place, you may face legal and financial risks. Driving without insurance is illegal in most states and can result in fines and the loss of your driver's license. Additionally, a lapse in coverage can lead to increased insurance rates in the future. Therefore, it is recommended to have a new policy in effect before cancelling your existing policy to avoid these issues.

• Purchase a new policy: Before initiating the cancellation process, it is highly advisable to secure a new auto insurance policy to avoid any lapse in coverage. This will help protect you from potential legal and financial risks associated with driving without insurance.
• Contact your insurance provider: Get in touch with your insurance company or agent to inform them of your intention to cancel. You can do this by calling them, using their mobile app or website, or visiting their local office, depending on their specific options.
• Understand the cancellation requirements: Different insurance providers may have varying requirements for cancelling a policy. Some common requirements include paying a cancellation fee, giving a 30-day notice ahead of your cancellation date, and signing a cancellation letter or form. Ask your insurance agent about any specific steps or documentation needed.
• Sign and send the cancellation letter: If required by your insurance provider, prepare and submit a signed cancellation letter. This letter typically includes your policy number, your name, and the desired date for your policy cancellation. You can also include a refund request if you have prepaid for your policy and have remaining coverage.
• Request a policy cancellation notice: Once your cancellation request has been processed, ask your insurance provider for a written confirmation or notice of the policy cancellation. This document serves as official proof that your policy has been terminated.
• Ask for a refund: If you have prepaid your insurance premiums, you may be entitled to a refund for the remaining unused portion of your policy. However, any cancellation fees or other charges may be deducted from this refund.

Remember to carefully review your insurance policy and understand the potential fees and consequences before initiating the cancellation process. It is always a good idea to consult with a licensed insurance agent or professional to ensure you are making an informed decision and following the appropriate procedures.

When not to cancel

There are several scenarios in which it is not advisable to cancel your auto insurance. Firstly, if you own and regularly drive a vehicle, it is essential to maintain insurance coverage to comply with state laws and avoid financial risk. Driving without insurance is illegal in most states and can result in fines and increased insurance premiums.

Additionally, if you are only temporarily not driving, it is usually better to suspend your insurance coverage instead of cancelling it. Cancelling your policy may result in a lapse of coverage, which can lead to higher premiums when you purchase a new policy. Some insurance companies allow you to put your vehicle on a storage plan during periods of non-use.

If you are moving to a new state, it is recommended to contact your current insurance provider to determine if your coverage can be transferred. Changing your address may impact your premium, and your current insurer may be able to adjust your policy to meet the requirements of your new location.

In cases of marriage or divorce, rather than cancelling your existing policy, you can add or remove your spouse from your current auto insurance. Marriage may even qualify you for a multi-policy discount if you and your spouse have insurance with the same company.

Finally, if you are facing a high premium, consider discussing discount options with your insurance agent before cancelling your policy. Many auto insurers offer various discounts for safe driving, taking driving courses, or having safety features in your vehicle. Exploring these options can help lower your premium without cancelling your coverage.

Frequently asked questions