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Can I cancel my car insurance at any time without penalty?

Auto Insurance

By Joanne Lemna | September 10, 2016

If you’re looking to cut costs or have just sold your vehicle (but haven’t yet bought a new one), you may decide to cancel your car insurance. But can you cancel your car insurance at any time without penalty? Will it impact your future car insurance rates?

First off, yes, you can cancel your car insurance at any time. Insurance companies will handle your cancellation based on the terms laid out in your policy documents. It will also depend if you pay monthly, annually, or bi- or tri-annually. If you pay monthly, you may need to pay for that month’s coverage and an administrative or cancellation fee. It can take some time to process a cancellation, so if you’ve been charged after cancelling, you may also receive a refund.

If you pay annually or are on another type of payment plan, you will receive a refund minus any administration or cancellation fees.

If you cancel ahead of time for your renewal or expiry date, you won’t be charged anything. However, most of us aren’t that good at timing!

How are penalties charged?

Insurance companies generally use two basic methods to process refunds on a cancelled policy: pro-rating and short-rating.

A pro-rated cancellation gives you back the full amount of the unused premium. A short-rated cancellation takes a certain amount out of the refund as a penalty for early cancellation. For instance, if you have an annual policy and cancel after only three months of coverage then you will get back nine months worth of premium on a pro-rated system. If the insurance company is short-rating the cancellation, you will receive nine months worth of premium minus cancellation fees. These are administration fees that are paid by the person requesting the early termination of the coverage.

Can I just cancel my automatic monthly payment?

With car insurance, many people choose to spread the cost by paying monthly. What happens though is that some drivers assume that by cancelling this automatic monthly payment they’ve cancelled the policy. That’s not the case. An insurance policy is in effect until you formally notify your insurance provider that you want to cancel. This cannot be done over the phone and typically must be done in writing. Talk to your broker or insurance company directly if you want to cancel your car insurance.

Cancelling Your Car Insurance

Remember that if you own a vehicle, it must be insured if you drive it or park it on public roads. You will also have a gap in your insurance history if you cancel your insurance and plan to purchase another vehicle and go to insure it again. A short gap isn’t a big deal, but an insurer may be concerned if it’s a long one as they assume you haven’t been driving. You may want to consider simply reducing your coverage to essential liability protection if you’re planning on owning a vehicle again or parking yours on public roads.

Your broker can help you cancel your car insurance and provide advice tailored to your situation. They’re there to help and answer your questions.

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