Auto Insurance Refunds: When To Expect Your Money Back

Auto insurance refunds are typically due when a policy is cancelled before its expiration date, and the amount refunded is usually calculated pro-rata, based on the unused portion of the premium. However, this can vary depending on the insurance company and the specific policy. Some companies may charge a cancellation fee, which will be deducted from the refund, and refunds may also be affected by how the policy was paid for (i.e. in full or in installments). It's important to carefully review the terms and conditions of your policy to understand your entitlement to a refund and any potential fees or penalties that may apply.

Cancelling your policy mid-term

Notice Period and Documentation

Some insurance companies require a notice period before cancellation, typically 15 or 30 days. Check your policy documents or contact your insurer to confirm their specific requirements. They may also request a formal letter of intent to cancel or a completed cancellation form, which you'll need to provide along with relevant details such as your policy number and desired cancellation date.

Cancellation Fees and Refunds

Cancellation fees may apply, and they can be a flat fee (around $50) or a percentage (usually 10-15%) of the remaining premium. These fees will be deducted from any refund you're owed. If you've prepaid your premiums, you're typically entitled to a refund for the unused portion. However, the refund amount may be prorated or subject to short-rate cancellation, resulting in a lower refund than expected.

Avoiding Coverage Lapse

It's crucial to avoid a lapse in coverage, as this can result in fines and higher premiums in the future. Ensure that your new policy is already in place before cancelling your old one. Having the new policy start at least one day before the cancellation of the old policy can help prevent any gaps in coverage.

Reasons for Cancellation

People may cancel their auto insurance policy mid-term for various reasons, including moving to a different state, finding a lower rate with another provider, or being dissatisfied with the current insurer's service. Other reasons include selling their car and not needing insurance temporarily, such as during an extended vacation or when a vehicle is in storage.

Alternatives to Cancellation

In some cases, alternatives to cancellation may be more suitable. For example, if you're facing high premiums, you can explore options like insurance discounts, bundling home and auto insurance, or shopping around for a more affordable policy. If you're going on an extended vacation, suspending your coverage may be preferable to outright cancellation.

Remember to carefully review your insurer's cancellation policy and procedures, understand the potential fees and refunds, and ensure a seamless transition to a new policy to avoid coverage gaps.

When the insurance company cancels your policy

If your insurance company cancels your policy, you will usually be entitled to a refund for the remaining time on your policy. However, the amount you receive back will depend on the reason for the cancellation and the company's rules about refunds. If the policy was cancelled due to non-payment, you will not be eligible for a refund and may even owe the company money.

Insurance companies are required to give a policyholder written notice of cancellation, typically at least 30 days before the cancellation takes place. This time frame varies depending on the state and the insurance company. The policy contract will specify the reasons for cancellation, and state laws usually limit the reasons that can be included. Common reasons for cancellation include:

• Non-payment of the policy or too many missed payments
• Intentional damage to a covered asset
• The insured poses a "moral risk"
• Significant changes in risk, such as a serious driving violation or a change in health status

If you receive a cancellation notice, it is important to act quickly. Contact your insurance company to see if they are willing to reconsider. You can also try to negotiate with the company by providing solutions to their complaints. For example, if your insurance is being cancelled due to too many claims, ask if you can remove that type of coverage from your policy. Show that you are willing to take on more risk by taking a higher deductible. You can also point out how long you have been with the company and how much you have paid them over the years.

Getting a refund for paying in full vs. in instalments

Whether you pay your auto insurance in full or in instalments can impact the refund you receive when you cancel your policy.

Paying in Full vs Instalments

When you pay your auto insurance in full, you are more likely to get a refund, especially if you cancel after just a few months. However, refunds can take time, so if you think you may need to cancel your policy before it ends, consider how long it might take to get your money back.

On the other hand, if you pay your auto insurance in instalments, you may not get a refund unless you cancel shortly after making a payment. For example, if you are on a monthly payment plan and cancel after four and a half months, your refund may only be half of your monthly payment.

Cancelling Your Policy

When you cancel your auto insurance policy, you will typically get a refund for the remaining time on your policy. However, the amount of your refund will depend on whether you or your insurance company cancelled the policy, how much time is left on your policy, and the company's rules about refunds. Some companies may charge a cancellation fee, while others may not. Additionally, some companies may short-rate" your policy, meaning they consider the first part of your policy term more expensive due to setup costs, resulting in a smaller refund.

Switching Insurance Companies

If you switch insurance companies before your policy ends, you may be able to get a refund for the unused portion of your premium. However, this will depend on the terms of your policy and any applicable fees or penalties. It's important to review your policy's cancellation and refund terms before switching to avoid unexpected costs.

Making Changes to Your Policy

You may also be eligible for a refund if you make changes to your policy that reduce your coverage or the number of vehicles or drivers covered. For example, removing a teenage driver or dropping comprehensive and collision coverage on an older car can result in a refund for the remaining time on your policy.

Cancelling a policy for someone who has passed away

Cancelling a car insurance policy for someone who has passed away is a relatively straightforward process, but it's important to be aware of the potential consequences and take the necessary steps to avoid any issues. Here's a guide on what to do:

Notify the Insurance Company:

Contact the insurance company as soon as possible to inform them of the policyholder's passing. Have the necessary information ready, such as the policy number and details of the deceased. Ask about their specific cancellation process and any requirements, such as a signed cancellation form or a written notification.

Understand the Refund Policy:

If the policy was paid in advance, you may be entitled to a refund for the remaining time on the policy. However, this depends on the company's rules and state regulations. Some companies may charge a cancellation fee, while others may not. Be sure to clarify this with the insurance company.

Avoid a Lapse in Coverage:

If the deceased's vehicle is still in use, ensure that there is no gap in insurance coverage. Arrange for alternative insurance before cancelling the existing policy to avoid higher rates and legal issues. Contact the new insurance provider to initiate the process and guide you through it.

Handle Administrative Tasks:

Follow up with the insurance company to ensure that the cancellation is processed correctly. Ask about the expected timeline for receiving any refunds. Additionally, check with the local DMV to understand any requirements regarding license plates and vehicle registration.

Seek Alternative Options:

If the deceased was a member of an organisation like AAA, consider exploring the option to retain certain benefits, such as roadside assistance, even after cancelling the car insurance policy. This can provide continued assistance and peace of mind.

Remember, it's essential to be proactive and communicate with the insurance company and relevant authorities to ensure a smooth cancellation process and avoid any financial or legal repercussions. Each state has its own regulations, so be sure to review the specific guidelines for your location.

COVID-19 refunds

The COVID-19 pandemic has had a significant impact on the auto insurance industry. As lockdowns and stay-at-home orders were implemented globally, there was a noticeable decrease in driving, which led to a reduction in accidents and insurance claims. This, in turn, affected the cost of auto insurance in several ways.

Premium Refunds and Discounts

During the early stages of the pandemic in 2020, many auto insurers offered refunds, credits, or discounts to their policyholders. This was due to the reduced risk of accidents and claims associated with fewer vehicles on the road. Some of the companies that offered refunds include Allstate, American Family Insurance, Geico, Liberty Mutual, Safeco, and USAA. The refunds were typically around 15% of monthly premiums for a period of two months.

Changes in Policyholder Behaviour

The pandemic also led to changes in policyholder behaviour. More people started working from home, which meant their commuting patterns changed. This could result in a reduced need for comprehensive coverage or the ability to qualify for low-mileage discounts. Some policyholders sought to reduce their premiums by adjusting their coverage levels or deductibles, given the decreased use of their vehicles.

Shifts in Insurance Shopping and Customer Expectations

The economic impact of the pandemic made consumers more price-sensitive, leading to increased shopping for auto insurance to find better rates or discounts. There was also a heightened expectation for digital services, as in-person interactions were minimised. Insurers had to adapt by enhancing their online and mobile platforms for sales, customer service, and claims processing.

Long-term Implications on Premiums

While the initial response to the pandemic might have led to lower premiums or refunds, the long-term implications on auto insurance costs are complex. Factors such as global supply chain disruptions and the increase in used car prices could lead to higher repair costs and potentially higher premiums. As driving levels normalise or increase, the frequency of claims could also rise, impacting rates.

Usage-based and Telematics Programs

The pandemic accelerated interest in usage-based insurance (UBI) and telematics programs, which base premiums on actual driving behaviour and mileage. With more people working from home and driving less, these programs became more appealing to those seeking to reduce their insurance costs.

While the COVID-19 pandemic has passed its peak, it is essential to note that some insurance companies may still be offering refunds or discounts to customers. It is always worth checking with your provider to see if you are eligible for any relief or adjustments to your policy.

Frequently asked questions