Jessica Sautter is a Content Writer for CarInsuranceCompanies.com with a Bachelor’s Degree from Eastern Michigan University in Elementary Education with a Major in Reading and a Minor in Mathematics.

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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

UPDATED: Sep 28, 2020

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Here's what you need to know...

  • Insurance plans can be canceled, but companies may impose an early termination fee if it’s outside of the renewal period.
  • A temporary suspension may be an option for people who are traveling or being deployed
  • Some states require insurance carriers to notify them directly of any cancellations

Car insurance premiums can put a strain on any budget, but it’s a necessary expense that’s legally mandated in most states.

While drivers may be required to either carry insurance, people do have the option of choosing the company and plan that best suits their needs.

Insurance policies are billed out for six months or one year at a time.

Policies can be canceled, but it’s important for consumers to understand the ramifications before taking this step.

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Table of Contents

Penalties May Apply

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Some companies will allow consumers to cancel their plans and switch at any time, but others will levy a fee if the policy is canceled before the term expires.

If the policy was prepaid, then the company will typically refund the unused premiums minus any penalty fees.

Consumers can learn more about any potential fees by:

  • Reading the fine print in the existing contract
  • Calling their insurance agent
  • Speaking to the company directly

If the savings are substantial enough, then it may be worth it to pay the fee and make the switch.

Another option is to simply wait until the renewal time to officially change companies.

When shopping around for coverage, drivers can also find out what the penalties and requirements are for canceling coverage.

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Purchase the New Coverage First

It may take a few days to choose a plan and make the purchase, so drivers shouldn’t rush to cancel an existing plan.

The goal is to avoid any gap in coverage between the old plan being terminated and the new one going into effect.

Consumers should wait until they have written the proof of coverage with the new company before informing the current carrier of their intention to cancel coverage.

This notification should be done in writing so that there is a record of the cancellation request.

People can ask the new company how long it will take to get the coverage in full effect so that they can set plans in place for canceling the existing plan.

Steep Penalties for Uninsured Motorists

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States across the nation are taking steps to discourage uninsured drivers. In 2012, Alabama was rated the sixth worst state for uninsured motorists.

Since that time, they’ve instituted harsh penalties for drivers in violation of the law.

These penalties include:

  • Fines of up to $1,000
  • License suspension
  • Reinstatement fees for the suspended licenses

These types of penalties are not unique to Alabama.

Across the nation, people who are driving without proper insurance can expect to face serious legal consequences. Uninsured drivers also face the risk of being sued personally for damages if they cause an accident.

This is why drivers must maintain their auto insurance, and they should take care to avoid any gaps when switching coverage.

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Considerations for Unused Cars

In some cases, there may be a vehicle that is used infrequently or that is going to be out of commission for a prolonged period of time.

If you don’t want to pay for insurance on a car that’s not out on the road, then there are some other options that are worth considering.

If the vehicle in question is a classic car that’s stored in the garage, then talk to your provider about special insurance plans for these cars.

It may be possible to purchase a discounted plan that will cover a classic car that’s only driven a few days out of the year or for special occasions.

You may have to call the insurance company to let them know that you’re taking the car out, but you may decide that the savings more than offset the minor inconvenience.

Active duty military personnel who are deployed for six months or longer may decide to put their car into storage and drop the insurance coverage.

It may seem like an easy solution to just cancel the coverage on the car, but this can cause problems with the state registration.

In states like Connecticut, drivers must prove to the Department of Motor Vehicles that a car will be stored before they can drop coverage.

Rather than paying to keep the full coverage in place or completely canceling the insurance, a suspension may be an option.

Here are a few things to know about suspended insurance plans:

  • You can suspend different types of coverage, including uninsured/underinsured motorist and personal injury protection
  • It’s recommended that drivers maintain comprehensive coverage so that damage caused by natural disaster or vandalism will still be covered
  • The state may require that the car has insurance coverage, so it may be necessary to file an affidavit of non-use with the Department of Motor Vehicles to avoid fines

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Mandatory Reporting

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Across the country, states have instituted minimum coverage laws dictating what level of liability or personal injury protection drivers must carry.

In states like Connecticut, the insurance companies are required by law to notify the Department of Motor Vehicles when a policy is canceled.

If the state has not been notified of a new insurance plan, then they may take the following steps:

  • Mailing a warning notice to the driver
  • Suspending the registration on the car in question
  • Blocking the driver from renewing or registering any other vehicle
  • Imposing fines

There are times when coverage must be canceled, including when a car is sold or sent to the junkyard, and if the owner finds a more attractive insurance plan.

However, care must be taken to avoid penalties and avoid any gaps in coverage.

It’s easy to shop around for better rates and switch to save money, but people may choose to wait for renewal time to avoid penalties.

In the case of travelers and military deployment, a temporary suspension may be a better choice than completely canceling the policy.

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