Paul Sanchez
There are several reasons why you might need to cancel your auto insurance, such as moving to a new province or country, or no longer owning a car. While you can cancel your insurance policy at any time, there may be penalties for doing so. These penalties depend on the insurance company and the circumstances of the cancellation. Some insurers impose a termination fee, while others do not. Cancellation fines are generally based on the remaining duration of the policy, with the penalty increasing the further off the policy end date.
| Characteristics | Values |
|---|---|
| Can you cancel your auto insurance policy? | Yes, you can cancel your auto insurance policy at any time and for any reason. |
| Is there a penalty for cancelling? | Yes, if you cancel before the end of your policy, your insurer will likely charge you a penalty. The penalty is usually higher the further off your policy end date. |
| How do you cancel your auto insurance policy? | To cancel your insurance policy, you must send your insurer a written notice. The cancellation will take effect once your insurer receives your written notice. |
| What happens after you cancel your auto insurance policy? | Your insurer must then refund the overpaid insurance premium, minus any penalty charges, or require payment of any outstanding premium accrued by the policy cancellation date, including any applicable penalty charges. |
| What is the difference between "short rate" and "pro rata" cancellations? | "Pro rata" cancellations occur when the insurance company cancels the policy, whereas "short rate" cancellations occur when the insured party cancels the policy. "Short rate" cancellations incur a higher fee than "pro rata" cancellations. |
What You'll Learn
Cancelling auto insurance mid-policy
Cancelling your car insurance mid-policy can result in a range of financial implications, including fees and other charges. When you take out car insurance, your insurance provider anticipates a full year of payments, and you are entering into a year-long contract. If you cancel your insurance policy before the year-long contract is up, you will likely incur a cancellation fee.
Cancellation fees
Cancellation fees can vary depending on the provider and your location. They can range from a flat fee as low as $25 to a percentage of your overall premium. Some insurance companies refer to this as a "short-rate cancellation fee", which is a financial penalty that varies in amount based on how long your policy has been in force. The longer the policy has been in force, the smaller the short-rate cancellation fee.
Cancelling your car insurance
To cancel your car insurance, you will need to notify your insurance provider. Depending on the company, you may be able to do this by calling your insurer or agent, or you may need to send a letter or sign a cancellation form. It is important to review all the options with your auto insurance provider or broker before cancelling.
Refunds
If you have paid your premium in advance, you will likely be entitled to a refund for the unused portion of your policy. However, this refund may be subject to deductions, such as a cancellation fee or unearned premiums. The amount of your refund will depend on when you cancel your policy. Some companies offer pro-rated cancellations, which give you back the full amount of the unused premium, while others offer short-rate cancellations, which take a certain amount out of the refund as a penalty for early cancellation.
Alternatives to cancellation
Before cancelling your car insurance, it is important to consider the alternatives, as the fees and costs can be significant. Some alternatives include reducing your coverage amount, increasing your deductible, or pausing your car insurance policy and taking your vehicle off the road.
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Short-rate cancellation fees
The short-rate cancellation fee is calculated using the "short rate" method, where the policyholder is charged a percentage of the unearned premium for the remaining time on their policy term. This is in contrast to the pro rata method, where the policyholder is refunded the full amount of the unused premium without any early cancellation penalty.
The short-rate cancellation fee can vary depending on the insurance company and the specific policy. In some cases, the fee may be a flat dollar amount, while in others, it may be a percentage of the total premium, typically around 10%. The earlier you are in the policy term, the higher the dollar amount of the cancellation fee, as it is based on a percentage of the total premium being refunded.
For example, if you have an annual premium of $1,200 and cancel your policy exactly six months into the year, you may expect a $600 refund. However, with a short-rate cancellation fee, the insurance company might only pay you $500, with the remaining $100 acting as the cancellation penalty.
It's important to note that short-rate cancellation fees are not used by many companies, and some insurance companies may waive the cancellation fee in certain situations, such as leaving the country or losing your license for medical reasons.
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Pro-rata cancellation
There may be instances when a policyholder can get a pro-rata refund by cancelling their own policy. However, this may vary based on the insurance provider, and self-cancellation will most likely result in a fee.
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Cancelling auto insurance at renewal
Cancelling your auto insurance at renewal is a much better option than doing so mid-policy. During your annual renewal period, you can avoid potential charges or cancellation fees. If you cancel mid-policy, you may be charged a cancellation fee, which can range from $25 to a percentage of your overall premium.
To cancel your auto insurance, you must notify your insurer. This can be done by calling your insurance company or agent, mailing or faxing a signed request for cancellation, or asking for assistance from a new carrier. You should also be aware of the date you want the cancellation to be effective and confirm you will receive a refund for any overpaid premiums.
If you are switching insurers, it's a good idea to initiate coverage with the new insurer before cancelling your existing policy. This will help you avoid a gap in coverage, which can affect your overall rating and increase your premiums. It will also ensure you are not left uninsured and at higher financial and legal risk.
If you have prepaid your premiums, you should ask your insurer if you can receive a prorated refund. This will give you back the full amount of the unused premium. Some insurers may offer a short-rate cancellation, which will take a certain amount out of the refund as a penalty for early cancellation.
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Cancelling auto insurance on a leased or financed vehicle
If you have a car lease or loan, check with the lender before you start the process. They may require you to maintain a minimum level of comprehensive and collision coverage, in addition to the state-required liability coverage, even if your car isn't being driven. If you no longer need your leased car, find out how to get out of your car lease.
Next, find out if you can cancel your car's registration with your state's department of motor vehicles by submitting an affidavit of non-use or other forms. Then contact your insurance company to reduce or cancel your insurance coverage for the period when you won't be driving.
If you cancel your insurance, consider also cancelling your vehicle registration, which may involve filing an affidavit of non-use with your state. Cancelling your insurance policy can be done at any time, but there may be a cancellation fee if you cancel before the renewal date. The insurer will generally charge you a penalty if you cancel your contract before its renewal date. Once you've paid this penalty, the insurer will reimburse you for all overpaid premiums.
To cancel an insurance contract, you must notify the insurer. You must send a letter to your insurer officially notifying them that you are cancelling your contract. The insurance will be cancelled when the insurer receives your letter, not when you send it. Call your insurer to check that it has received your letter, or ask for an acknowledgement of receipt.
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Frequently asked questions
Yes, you will probably be charged an early cancellation fee. This is because, when you cancel your policy, you are breaking a contract. The fee covers some of the costs incurred by the insurance provider when setting up a new policy.
Most auto insurance companies use what is known as a "short-rate" when calculating a refunded premium. For example, if you cancel your policy exactly six months into a year-long policy, you might expect a refund of $600 for the remaining time left on your policy term, but the insurance company might only pay you $500, with the missing $100 acting as a cancellation penalty.
Yes, some insurance companies will not charge cancellation fees if you cancel your policy because you are leaving the country or losing your license for a medical reason.
You will need to send a request in writing to your insurance provider, including the date you want the cancellation to be effective.
If you cancel your insurance policy early, you will need to choose a cancellation date and send your request in writing. The company will process your request, and coverage will cease on your chosen date. They will confirm the transaction in writing and issue you a refund for any amounts you owe after the cancellation fees.
