Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Sep 29, 2020

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Key takeaways...

  • It’s illegal to drive without car insurance
  • You also need to carry homeowner’s insurance
  • There are severe penalties for driving without insurance

Canceling a home or car insurance policy is essentially calling an end to an ongoing risk protection contract between a covered party and an insurance provider. In many cases, the process of doing so basically relieves the two parties from any further obligation to each other.

Even though there are valid reasons why you might want to cancel your car insurance policy, this doesn’t mean that customer is not going to suffer some negative effect, however.

Further, where there are early-cancellation specifically penalties included in the signed agreements or there are ripple effects that depend on the coverage to stay in place, both obvious and subtle penalties can occur.

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Early-Cancellation Terms

Most express terms including an express penalty for early cancellation in an insurance policy frequently allow the provider to keep some of the money paid ahead of time for the coverage premium.

To be enforceable such terms need to be spelled out in the insurance agreement the customer has signed.

 In some uncommon cases, a customer could be required to pay a monetary penalty.

However, most early cancellations occur when the customer stops sending in renewal papers and periodic payments. Common agreements simply end the coverage at that point.

The insurer has no need to respond or provide insurance anymore, and the customer has no obligation to pay or listen to the provider anymore.

The status changes to as if the two parties never had an agreement at all. There are many other ways to cancel your car insurance policy.

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New Coverage Problems

There is some cost benefit to retaining the same car and home insurance policy from year to year.

While competitors can quote lower prices, nothing is firm until an insurance provider actually reviews all the risks of a customer and solidifies a personal price.

In many cases, this can be higher than the previous policy cost if risks have increased since the last evaluation.

So while a customer may have gotten rid of a less-than-stellar insurer for home or car, he may get stuck with a higher premium going to a new company as a new customer.

External Requirements

In many cases with home insurance, the financing company that paid for the home loan to buy the house requires home insurance to stay in place at all times during the life of the loan.

This protects the home as an asset when it is used as collateral for the loan in the first place. Canceling a policy doesn’t get a homeowner out of the coverage need required by the loan agreement he signed.

This means he will have to find another policy elsewhere, which again could cost far more than what was paid before.

This rush to find new coverage can make a homeowner vulnerable to a provider seeking to charge a premium for the same kind of policy desired. This article might help answer your questions about home owner’s insurance.

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No Coverage

If a customer cancels a policy, he is without insurance coverage unless he has lined up another policy with someone else.

It tends to be the law of coincidences that when someone does put himself in this sort of situation, accident tends to happen.

When they do, the home or car is entirely in the financial responsibility of the owner and no one else.

While the damage may have been caused by another party that can ultimately be held responsible via a lawyer, the owner will be stuck with a damaged home or a useless car in the meantime, having no money to make repairs.

This is likely to be the ultimate penalty resulting from an early, ill-planned cancellation of insurance coverage. There are more severe penalties for driving without car insurance.

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While canceling a car or home insurance policy in many situations will not have an express penalty or anything further owed to the insurance provider, the customer will still likely deal with ramifications as shown above.

These impacts still have a real negative effect on a customer’s wallet and finances.

And in the worst case scenario, if a disaster or accident does happen, the lack of coverage can leave person homeless or car-less.

Change does occur eventually. When a new policy and insurer is needed, using Internet insurance comparison websites can be very helpful.

By plugging in the details of the current policy and location, a number of general quotes can be obtained for free, giving an idea what the cost of change will be before following through.

This can save a policyholder from making a mistake canceling an existing policy when he probably shouldn’t.

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  1. https://www.nationwide.com/homeowners-insurance-discounts.jsp
  2. https://www.geico.com/information/aboutinsurance/homeowners/
  3. https://www.wellsfargo.com/help/faqs/insurance/property/
  4. https://www.progressive.com/homeowners/