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 20, 2020

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Key takeaways...

  • Auto insurance policies are sold in terms so that premiums don’t change up and down every month
  • You have the right to switch auto insurance companies at any time during your term even if the term hasn’t expired
  • When you switch from one carrier to another midterm you need to cancel your existing plan to request your refund
  • If you switch from carrier to carrier often, it can’t affect your ability to buy insurance from another carrier
  • If your policy cancels for non-payment, it could land you in a high-risk rating class where you pay a higher deposit

Nowadays, it’s not uncommon for a car insurance consumer to switch from company to company every year. Having a laptop in your bedroom or a desktop computer in the office gives you the power of getting auto insurance quotes at your fingertips.

Since auto insurance quotes are so easy to solicit, it’s not a surprise that customer loyalty isn’t as popular as it once was.

If you were raised by parents who stayed with the same insurance agent their entire adult lives, the idea of switching companies to save money might be a bit foreign to you.

Once you’ve saved money once, you’ll be on a mission to save money again when your original rates go up.

Find our how much you could save on car insurance by using our free rate comparison tool above to compare quotes today.

Table of Contents

You’re Not Stuck With an Insurer for the Entire Term

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All auto insurance policies are sold in terms. If you’re buying a standard policy, the term will either last for a period of six months or a period of one year.

No insurer can cancel your policy unless you do one of the following:

  • don’t pay the premiums
  • you’re guilty of material misrepresentation
  • drive without medical clearance
  • file a fraudulent claim

You, however, can cancel your policy at any time during the term. In essence, the term protects you from being taken advantage of after you’ve already agreed to pay a certain premium.

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You Have the Right to Switch Insurance Companies

Not only do you have the right to cancel your auto insurance during the term, the Consumer Bill of Rights also says that you can switch your carriers whenever you’d like to.

As long as you qualify for coverage through the carrier that you’re applying to, you have every right to cancel your coverage through one company just to buy coverage through another. The insurer can’t even ask you why you’re canceling your policy.

You are entitled to a refund when you’ve paid your premiums in advance and you cancel your coverage early.

You don’t just have to kiss the money that you’ve paid goodbye because you’re severing ties with your insurer. Instead, you need to submit your cancellation request in writing and include an address where your refund can be mailed.

If you request that the coverage be canceled and there are still unearned premiums left on the account, the money is sent to you. You could, however, be charged a fee for canceling your contract before the term was meant to be over.

It’s not called a penalty, but it could be considered one when you consider the fact you’re being shorted on your refund for canceling.

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What is the short-rate penalty?

If your contract says that you’re going to have to pay a short-rate fee for early terminations, it could be a bad idea to switch insurers midterm.

It all depends on how much you’re going to be charged, the reason you’re switching carriers, and how much you’re saving to start a new policy.

The short-rate fee you’re charged might be fixed but it could also be a percentage of what is due.

Avoid switching to a new insurer strictly to save money when you’re going to pay more than the amount that you’re saving in fees. If the fee is minimal and you’re still going to save a pretty penny, it still makes sense to start a new contract.

What does it mean to lose a loyalty discount?

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Insurance companies would prefer that you were loyal. It saves them money in administration costs and it also saves them time trying to market new segments.

To show appreciation to consumers who are loyal, many of the largest auto insurers give loyalty discounts after you’ve stayed with the company for three or more years.

It’s not unusual for companies to give larger loyalty discounts to customers as the years go by. That doesn’t mean you’ll be getting the best rate from a carrier, but it does mean you’ll be saving a certain percentage off of the premium you’re being charged.

If you switch, the loyalty discount won’t follow you.

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Avoid Having a Lapse in Coverage

Timing is key when you’re moving insurers. It’s tempting to try to avoid making a premium payment for a month by starting your new policy weeks later, but that’s not advised.

Even just a few days in lapses could affect your reputation as an insurance consumer. The last thing that you want on your record is a lapse in coverage.

If you’ve already made the mistake of canceling your policy before another policy was put in place, you could be charged a high-risk rate.

Having a lapse in coverage is frowned upon. Your insurance history could be taken into account when rating your policy and setting your rates.

Your Deposit Could Be Higher If You Have a Lapse

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You aren’t going to look like an insurance hopper if you go from one carrier to the next, but the bad timing could cost you both a higher rate and a higher deposit.

Some states allow companies to charge new applicants larger deposits when they let their insurance lapse no matter how long the lapse is.

If you’re worried that you’re switching insurance carriers too often, don’t. As long as you’re making the switch for the right reasons and you’ve considered the costs, you’re safe making the switch.

When you are sick and tired of being overcharged for your insurance you should use online tools to shop around. Get instant quotes now and see why so many people are switching carriers from year to year. Enter your zip code below to get started.

References:

  1. https://www.thebalance.com/what-is-a-policy-period-527306
  2. https://www.thebalance.com/car-insurance-refund-527038
  3. https://www.irmi.com/online/insurance-glossary/terms/p/policy-period.aspx
  4. https://www.thebalance.com/insurance-company-cancelling-policy-2645554
  5. http://insurance2.illinois.gov/AutoInsurance/auto_cancel.asp
  6. https://www.njm.com/-/media/pdf/automobile-insurance-consumer-bill-of-rights-a-288.pdf
  7. https://www.irmi.com/online/insurance-glossary/terms/s/short-rate-cancellation.aspx
  8. http://www.npr.org/2015/05/08/403598235/being-a-loyal-auto-insurance-customer-can-cost-you
  9. https://www.thebalance.com/how-long-will-i-be-a-high-risk-driver-527279
  10. https://www.thebalance.com/what-is-a-car-insurance-grace-period-527413