Many people decide to wait until the insurance renewal date before canceling their policy, because they want to avoid paying a penalty, but sometimes, staying with your insurance company just to avoid a penalty isn't the best option.
Here are some factors to think about when trying to decide whether you should cancel your policy before its renewal date.
Key Takeaways
- Before you cancel an insurance policy early, you should check the fine print to be aware of any penalties or fees you might incur.
- There are also hidden penalties to consider, such as losing a multi-line discount or other rewards you currently have.
- Compare the total costs of leaving your current policy with the long-term savings you'll gain on a new policy before you make the switch.
What Might Happen if You Cancel Your Policy?
Be aware that, in some cases, you may end up owing money if you cancel your policy early.
Insurance companies finance their policies for a certain length of time. If the terms of a policy are met, then the monthly payments will cover the total cost of the policy by the end of its term.
The cost of insurance changes if the term is reduced to less than the original contract term. When the term is cut short, your monthly payments no longer meet the schedule. You may end up owing money even after your policy is canceled. There may be a penalty that has to be paid, as well as any other fees.
Important
Many companies do not charge cancellation fees. Your policy should state whether any penalties apply for ending coverage before the renewal date.
What Should You Consider Before Canceling Your Policy?
It still may be worth canceling your policy, even if you'll incur a penalty. Before you drop your coverage:
- Ask for the specific cost of the "penalty." You may be surprised by how many insurance agents cite a penalty without even knowing its cost. It could be $20, $500, or any other estimate. The exact amount should make a difference in the decision you make.
- Compare the cost of the new policy to the cost of the one you want to cancel. Suppose the price difference is under 10% per year. In that case, you could try getting your current insurer to match the new price. This small amount should not be a big deal to an insurance company, especially if your account is in good standing, and you have multiple policies with the company. If it does not match the price, figure out whether you would end up ahead after you pay the penalty. If you end up even (or close to even), you have to decide whether the new policy is worth the effort.
Warning
Be careful if you get a rate quote that is much lower than your current rate. Make sure you go over all details to fully understand the costs.
- Compare the policy advantages and coverage of the new policy to your current one. Your current and potential insurers should be able to help you focus on the top features of the policy you have or are thinking about. If a new company is able to offer you services that better meet your needsor policy features that are valuable to you, it may be worth paying more to switch.
- Understand payment terms. Insurers often have varying payment policies. You should find out the terms of these policies and choose the one that works best for you.
- Find out whether there will be consequences as a result of canceling the policy in question. Often, people find cheaper car insurance with a new company and decide to switch, but they might leave their home insured by their original insurer. They then get an awful surprise when their rate increases, because they lost their multi-policy or bundling discount. Look at your entire insurance portfolio; make sure you know all the facts before making a decision. You should ask yourself: Will changing one policy affect the cost of coverage on another?
The Bottom Line
While many companies will let you off the hook without a fee, that's not always the case. It's always a good idea to shop around. Make sure you're getting the best deal for your insurance needs.
But be sure you understand the costs of making a switch before you get a sudden surprise with your final bill.
FAQs
Generally, policyholders receive a prorated refund of unused premium payments remaining after the cancellation date. However, providers may also leverage fees or impose a cancellation wait time. Drivers' insurance may also lapse, resulting in fines or loss of license.
Under what conditions might an insurer be given the right to cancel an insurance policy? ›
Your insurance company can cancel your coverage if you intentionally put false or incomplete information on your insurance application. Your insurance company can cancel your coverage if you fail to pay your premiums on time.
What happens if you cancel your insurance policy early? ›
If you paid your premium in advance and cancel your policy before the end of the term, the insurance company might refund the remaining balance. Most auto insurers will prorate your refund based on the number of days your current policy was in effect.
What happens if insurance cancels a policy? ›
It depends. Some insurance companies will allow you to reinstate your policy if it gets canceled, while others will not. If your existing provider will not reinstate your auto policy, you will have to apply for coverage through another insurer or have your current insurer issue a new policy, if possible.
What are the three types of cancellation? ›
When filling out the lost policy release, also called a “cancellation/lost policy release,” the insured typically chooses between three types of cancellations: flat, pro-rata, and short rate. Flat cancellations are used when the insurer was never exposed to risk because the coverage never went into effect.
Can I cancel an insurance policy at any time? ›
Policyholders can cancel their auto insurance policy at any time, for any reason. And you never have to wait until the end of your policy period to cancel your policy. Even if your policy only started a few days ago, you may cancel it.
What is a good reason to cancel insurance? ›
you fail to pay the premium by the due date. you obtained the policy through misrepresentation or fraud. anyone insured on the policy violated the terms or conditions of the policy.
What are the grounds for valid cancellation of a policy? ›
Examples of valid reasons for cancellation include:
Fraudulent claims made by policyholder. Dishonest documentation or deceit by policyholder. Indications that a policyholder is a risk to the insurance company.
What is the process of cancellation of insurance policy? ›
Get in touch with the support department of the insurance company to submit the request for policy cancellation. You will need to send a written request either offline or online with the details of your policy and the reason for the policy cancellation.
Is cancelling an insurance policy bad? ›
If you cancel, it doesn't usually affect getting insurance in the future. But if your insurer cancels, it's because they think you did something to break the rules. Having a policy cancelled (or voided) by your insurer can make your insurance a lot more expensive further down the line.
Most insurance companies will charge you around 2-7% of your premium (usually they'll take the higher percentage amount if you're near the start of your term).
Do insurance companies charge to cancel policy? ›
In most cases, you won't have to pay a cancellation fee. If you do, it will likely be nominal — around $50, or a small percentage of your final premium. If you're facing high fees and switching to a new auto insurance provider, consider whether it makes more sense to wait until the end of your policy's term.
Is there a penalty for cancelling insurance? ›
At the same time, you might also be subject to a cancellation fee. Many companies don't charge such penalties, but with those that do, you can expect to pay a flat fee of under $100 or around 10% to 15% of the remaining policy premium.
Do insurers know if you've had a policy Cancelled? ›
Once you have a policy cancelled, you might find other insurers refuse to cover you because they see you as a risk. Do insurance companies check if you have previously had insurance cancelled? Yes, insurance providers ask applicants whether they have had an insurance policy cancelled in the past and why.
Is it hard to get insurance after being Cancelled? ›
Getting car insurance after a canceled policy isn't as complicated as it may seem. However, your new policy will likely cost more. The process you'll have to go through will depend on what method your previous insurance company used to drop your coverage and what grounds led to that decision.
Do you get charged for cancelling insurance? ›
Just tell your insurance provider that you want to cancel and they'll arrange it for you. You'll probably have to pay a fee, which may be described as an administration, arrangement, processing or cancellation fee by your insurance provider. This fee can vary among providers and depending on when you cancel the policy.
Does it cost to cancel an insurance policy? ›
In most cases, you won't have to pay a cancellation fee. If you do, it will likely be nominal — around $50, or a small percentage of your final premium. If you're facing high fees and switching to a new auto insurance provider, consider whether it makes more sense to wait until the end of your policy's term.
Do you get your money back after Cancelling insurance? ›
If you choose to cancel your policy, or your insurance company cancels it, you typically won't get a car insurance refund unless you've paid the premium in advance.
