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: Dec 21, 2017

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Key takeaways...

  • Auto insurance is a legally binding contract between you and the insurer that’s drafting the insuring agreement
  • Under the contract, the insurance company is obligated to pay for covered claims as long as you fulfill your duties as an insured and you pay your premiums
  • Auto insurance companies can only cancel existing insurance mid-term for a few reasons, but the policyholder is free to request cancellation at any time
  • Some states allow auto insurance companies to charge a fixed fee or a short-rate fee if policyholders cancel their coverage mid-term
  • Since you pay for coverage up front, you are entitled to a refund of your unused premiums after the cancellation is processed

Personal auto insurance policies last for either 6-month or 12-month periods. Since longer terms protect consumers from rate increases, the longer your term the better.

While you might assume you’re obligated to keep your coverage for the whole year, buying a 12-month policy doesn’t mean that you have to keep your policy the whole time.

If you were pressured into buying a high-priced policy or you didn’t have time to do a rate comparison, it’ll probably suit you best to shop around and find affordable premiums before your policy renews.

Before you shop around, look into your carrier’s cancellation policies. It’s your right as a consumer to cancel your policy, but it might cost you.

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Table of Contents

Your Right to Cancel Your Coverage

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As the named insured on an auto insurance policy, you’re authorized to make changes to your policy or to request a termination. Even though insurance is sold in terms, it’s the consumer’s right to cancel coverage at any time as long as the request is made in writing.

Carriers may ask you the reason for cancellation, but just know you don’t have to tell the insurer why.

Your request will be processed to cancel your coverage for any future date. It’s also possible to backdate your cancellation if you have proof that you’ve sold a car or you have proof that you replaced coverage with a new carrier.

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Does the Company Have the Same Right to Terminate Coverage?

Even though policyholders and carriers are both parties in the insurance contract, they don’t both have the same rights. While insuring agreements protect the carrier, you have more consumer rights than the provider.

Because of this, insurance companies aren’t free to severe ties with you in the middle of the term for just any reason.

Companies are free to cancel your policy within 60 days for almost any reason. There are only a few reasons that the company can terminate your coverage mid-term after the 50-day binding period is up.

These reasons vary by state but most state regulations are similar. Common reasons include:

  • Failure to pay
  • Fraudulent statements on your application
  • Fraudulent claims
  • Violations of terms under your policy
  • License suspension or revocation

Am I entitled to get my payment back?

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Whether or not you’re entitled to receive your premiums back depends on who cancels the policy, how much has been paid, how long you’ve had coverage, and the reason for the cancellation.

Cancellations that are initiated by the insurer are handled very differently than cancellations that are initiated by the policyholder.

Refunds After Insurer Terminates Your Coverage

If your insurer initiates the cancellation, you’ll receive all of your unearned premiums back. The insurer won’t charge fees because the company made the decision.

Sometimes the insurer will rescind the coverage if fraud is detected. When there’s a rescission you’ll receive all of your money back because it’s as if the coverage never existed.

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Refunds After You Cancel Your Own Car Insurance

When you’re making the decision to cancel your coverage before your renewal, you’re still entitled to a refund but could be charged fees.

Whether or not you’ll pay a fee for the early termination depends on when you leave and sometimes why you’re requesting the cancellation.

Companies must pay you your unearned premiums.

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What are unearned premiums and why does your payment schedule matter?

Unearned premiums are those that you’ve already paid but that you haven’t been earned by the insurer.

If you’ve paid in full at the beginning of the term, your unearned premiums would be from the cancellation date through the expiration date. If you pay monthly, it’ll be from the date you cancel until the end of the billing cycle.

What is the difference between short-rate and pro-rated cancellations?

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You should check to see if your company does short-rate or pro-rated cancellations. The two are very different.

A pro-rated cancellation is one where the policyholder will receive 100 percent of their unearned premiums back after the cancellation is processed. A short-rate cancellation is one where the carrier will deduct fees.

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What type of fees can be deducted from your refund?

A short-rate cancellation is one where the insurance company is entitled to charge you a penalty for cancelling the coverage mid-term. Some carriers will charge a flat fee of up to $75.

Other carriers will charge a fixed percentage of the remaining balance. This fee will be deducted from your refund before it’s issued.

Will the fee be waived?

Some companies will waive the short-rate fee if you’re moving out of the country for deployment or if you are surrendering your driver license.

Ask if this is an option when you’re processing your cancellation so that you can save money and avoid a fee.

How to Cancel Your Auto Insurance

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If you’ve done the math and you think it makes more sense to cancel your existing coverage, you need to send in a written cancellation request.

The request needs to include important information that your insurer can use to locate your policy and process the cancellation on the right date. Here is what should be on the page:

  • Your name and mailing address
  • Your policy number
  • The company name
  • The date you want your cancellation to be processed
  • Phone number for contact
  • Attached proof of replaced coverage if you want a backdated cancellation
  • Signature of named insured

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Don’t Get Penalized

If you cancel your insurance and you don’t have a replacement policy, you could be fined or even lose your license. Don’t cancel your insurance without buying another policy or you could be taking an expensive chance that comes with very expensive consequences that could change your life.

If you’re convinced that you’re paying too much for your auto coverage, it’s time to verify that feeling by getting quotes.

Use an online rate comparison tool and you can see what other carriers in the industry are charging. If you can find coverage on the cheap, apply for coverage and cancel your old policy. Look out for your refund and use the money you receive to pay some of your future premiums.

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