What You Should Know About Cancelling Your Insurance Policy
Insurance policies are usually renewed on an annual basis. Many people choose to stick with one broker or company year over year. What do you need to know when you’re facing a cancellation? You can technically cancel your insurance at any time—but to make sure you do it right, here’s what to know about the cancellation process.
How Do I Cancel My Insurance?
You insure a car for a year or two, using it to drive back and forth to work. You get a new job and no longer need your personal vehicle. After you sell the car, you want to cancel the policy associated with it. Or maybe you shopped around and found a better premium elsewhere; whatever the reason, you want to cancel your policy before the contract is up.
To start, give your insurance broker a call and explain your circumstances. Note that if there is more than one named insured on the policy, the cancellation will need to be signed off on by all. The cancellation is easy, but there are a few factors to consider.
The Best Time to Cancel
The best time to cancel your insurance is after you have another policy in place. If you still own the car or home, ensure there is no gap in coverage. Anything can happen in a day, and if there is a loss or damage during this time, it won’t be covered and could be devastating. It’ll be seen by future insurers as a lapse in coverage and could increase the rate you pay going forward, too.
If you’re cancelling because you’ll no longer have your car, keep it insured all the way up until you sign the registration over to the new owner.
Cancellation Fees
Don’t worry: cancelling your policy won’t hurt your credit score. But if you need to cancel before the annual contract is up, there could be fees attached. If you pay your policy on an annual basis, you will be reimbursed for the premium you paid. Sometimes, though, insurers charge a “short rate” cancellation fee. This is usually around 10% of the remaining premium you agreed to pay for the period.
Say you paid your car policy in full at $1,500 a year. That breaks down to $125 a month. If you still have 4 months left on your policy when you cancel, you would get $500 back for the premium you paid but didn’t use. If you add the $50 short rate fee (10% of those 4 months of premium), you would actually be refunded $450.
If you pay on a monthly basis, you might be reimbursed based on when you cancel and when you pay—but you’ll still have to pay short rate.
Ways to Save When Cancelling Your Insurance Policy
Renewal time is the best time to end a policy, so the closer to the annual mark you cancel, the less fees you’ll incur.
A “pro-rate” or “pro-rata” cancellation involves a straight refund of paid premium with no penalty. If the cancellation is initiated by the insurance company, it will be pro-rated. If you opt to cancel yourself, it will most often be short rate. The type of cancellation procedure you’ll see depends on the reason behind it.
The best ways to save when cancelling your insurance policy are to plan ahead and avoid it between renewals whenever possible. But as brokers, we know things can change quickly. Contact your trusted insurance expert to cancel with your best interests in mind.