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CAR INSURANCE INSIGHTS

You can generally cancel an auto insurance policy at any time.

Canceling your car insurance is generally a straightforward, reasonably painless process, but there are some pitfalls to watch for when canceling a policy.

So let's take a look at when you can cancel your car insurance, how to cancel auto insurance, and when you shouldn't cancel your coverage. Here’s everything you could possibly know about canceling your auto insurance.

KEY TAKEAWAYS
  • To cancel a car insurance policy, you can either contact your current insurance company or have your insurance agent do that if you have an agent.
  • You may have to pay a cancellation fee or short rate fee when you cancel your auto insurance policy if you cancel during the policy.
  • Companies usually return car insurance premiums you prepaid when you cancel a policy.
  • You want to make sure your old policy overlaps with your new coverage, so your car is insured.

How to cancel your auto insurance policy

You can usually request cancelation in two different ways. You can either:

  • Contact your old insurer yourself
  • Your agent will do it for you

Most insurance companies will probably break the bad news to the old insurer.

"When we switch one of our clients to a new carrier, we always have them sign a cancellation form for the old carrier so that we can cancel their old policy in the most formal way possible, to avoid any issues," says Peter Conte, a licensed insurance broker at Honig Conte Porrino Insurance Agency, a third-generation family business headquartered in Manhattan.

Here are some things to know about canceling car insurance:

Contact your insurer

You can always call your insurer yourself and tell them that you'd like to cancel the policy, but email or text is fine, too.

Send email for cancelation

Conte recommends emailing the insurance company if you're canceling on your own. He prefers that form of written notice to texts and phone calls.

"I believe it’s best that you do notify your carrier or agent via email so that there is a paper trail," Conte says.

Visit the office

If you're concerned that your email or phone call isn't going to make it clear that you want to cancel your car insurance policy, you could swing by your insurance agent's office if it's nearby -- and tell them in person.

Check for potential penalties

Car insurance providers don’t generally charge penalties for switching to a new car insurance policy with a different insurance company, but some insurers may charge a car insurance cancellation fees, which are usually about $50. Or you may get charged a short rate fee. That’s about 10% of the premiums.

Insurance is regulated differently in every state, and each company's policies are different. So, check your current policy's fine print before canceling car insurance.

You can run into issues when you cancel a car insurance policy if you still own your car and didn’t get other coverage. If that happens, run the risk of financial penalties, even if you don’t drive the vehicle.

Compare car insurance quotes

Before you cancel car insurance, you'll want to comparison shop first. You might come to realize that you're paying a great rate and that the last thing you should be doing with your time is canceling auto insurance.

Avoid a lapse in coverage

You never want to cancel car insurance without having a new policy firmly in place.

Every state is different. In New York, Conte says owning a vehicle without car insurance can result in an $8 daily fee for the first 30 days, $10 daily fee for the next 30 days, and then $12 daily fee for the final 30 days.

“After 90 days of no insurance, your license and registration on the vehicle will be suspended,” Conte says.

Research new insurer

If you’re changing insurance companies, make sure to research other companies before switching policies. Check customer reviews and the company’s finances, including AM Best, to ensure the insurer will be around to pay your claims.

Read the fine print of any potential new insurance provider. You may want to take note of whether they have any car insurance cancellation fee for future reference.

What happens when you cancel your policy?

A couple of scenarios can happen. You contact your insurer and cancel the coverage -- and you get any money back that's owed to you.

Or you may end up canceling but still have several more days or another month of coverage, even if you do get a new policy.

That's OK. You can legally have two car insurance policies at once, as long as you don't file identical claims with both of them. That could get you thrown into jail for insurance fraud.

You might also get hit with an auto insurance cancellation fee if you cancel earlier than the company expected.

What happens if you don't cancel insurance the right way?

Every state handles insurance differently. But you definitely want to make sure you cancel auto insurance -- versus not saying anything to the company.

What's the risk of not contacting the insurer and canceling car insurance? The insurer may alert the Department of Motor Vehicles that you don’t have insurance coverage.

If that happens, Conte says, "it will cause an error in the DMV system and the DMV will start charging the insured for not having insurance, even though there is coverage."

You could even have your license suspended, Conte adds.

What if your insurance company cancels your policy?

If your car insurance company cancels your policy, you need to make sure you get new car insurance immediately.

Having your car insurance policy canceled may happen if:

  • You don't pay premiums anymore.
  • Your license gets suspended.
  • You engage in insurance fraud.

That said, at the end of a policy's annual term, you could find out that your car insurance has been canceled. For instance, your insurance provider may decide that you are heck on wheels and that it isn't worth the risk to insure you if you've been driving erratically and racked up a slew of speeding tickets.

Bottom line -- if your insurance company were to cancel your policy, you need to get a new one. In most states, it's against the law to drive without car insurance.

What are reasons to change car insurance policies?

The most common scenarios to change auto insurer policies are:

  • You want to save money and seek a lower price with the same coverage.
  • You feel like your car insurer has lousy customer service, and you'd like to find a company that you feel has your best interests at heart.
  • Your car insurer canceled your policy and you need a new one.

When should you switch auto insurance companies?

Here are two scenarios when it switching insurers may make sense:

  • Unhappiness about the car insurance policy, such as paying too much.
  • Finding a better deal or protection from another insurer.

Whatever the reason, you should make the switch whenever it seems untenable to stay with the auto insurance company.

When is the right time to cancel a car insurance policy?

In most cases, the best time to cancel a car insurance policy is when your current car insurance policy is ending. You want to time it so that you never are without car insurance.

Even if you have just a day or two where you don't have car insurance, and even if that car is parked in the driveway during that entire time, you could be charged a fee by your state for not having car insurance.

Drivers should make sure they have a day or two overlap at renewal date when switching carriers. That one or two days won't cost you much and you'll still be protected.

How do you buy a new auto insurance policy after a canceled policy?

Compare auto insurance companies’ rates and coverage and look for the best insurer with the best price and protection.

But what you don't want to do is wait too long to purchase a new auto insurance policy if it’s canceled. You can be hammered with daily fees. Plus, car insurance companies will look at you with suspicion when you buy a new policy. That means higher rates.

If you truly have a good reason, your insurer may not hold it against you if you explain why you've had this four-month or however long lapse in coverage. But often, insurers will raise your rates if you've gone without insurance for an unexplained period.

How should you draft an auto insurance cancelation letter?

Sometimes your new insurance company will do it for you, but if you're going to write an email, text or letter yourself, you want to make sure the following information is in your letter:

  • A greeting. ("To whom it may concern" is always a fine way to start.)
  • A quick and to-the-point explanation of why you are writing. (You could say something like, "I am writing to tell you that I am canceling my car insurance policy.")
  • Your auto insurance policy number. (This is very important.)
  • You could mention the VIN of the vehicle or vehicles on the policy.
  • If you’re due any refunds because you've prepaid for your policy, you'll want to request that.
  • A request to stop any automatic payments or debits by the date your coverage will end if you're doing automatic withdrawals for your car insurance payments.
  • Your name.

Frequently Asked Questions

Can you cancel auto insurance at any time?

You can cancel auto insurance whenever you want. That said, just because you can cancel auto insurance at any time, it doesn't mean that you should.

Some car insurance companies charge an auto insurance cancellation fee before a policy's expiration date. You want to check the fine print before you actually cancel. (Often, the fees are around $50, though sometimes they'll charge you 10% of the remaining premium.)

But as long as you don't mind paying the fee, you can cancel your auto insurance policy right after signing up if that's what you want.

Is it easy to cancel a car insurance policy?

Yes, your new car insurance company may have you sign a letter stating that you're stopping coverage with the old car insurance company, and you're done.

But if you have to cancel a policy yourself, it's just a matter of making a phone call, sending a text or sending an email. That said, Conte recommends email as a good way to leave a paper trail, in case somehow later you learn that your car insurance policy wasn't actually canceled.

How much does it cost to cancel auto insurance?

Canceling auto insurance doesn’t cost anything if you cancel at the end of a policy's term. That said, some car insurance companies charge a car insurance cancellation fee if you cancel before your term expires.

Generally, these fees are about $50, but sometimes an insurer will charge what they call a "short rate" fee, and those tend to be 10% of the remaining premiums in the policy.

So, you definitely want to know beforehand what your current insurer's policy is before making a break for a new one.

When do you cancel insurance after selling a car?

When to cancel car insurance when you’re selling a vehicle depends on whether you’re getting another car.

If you’re selling a car and have no plans to buy a new one, you should cancel your car's insurance shortly after you sell your vehicle.

You want to hang onto that insurance until you've sold it. A buyer will want to test drive it, and regardless, as long as you own it, it needs to be insured. That's generally the law in most states.

If you're going to buy a new car, you probably want your new wheels to stay on the policy unless you're unhappy with the insurer.

You definitely don't want to cancel your policy and then, say, two weeks later, return to the policy with a new car. Insurance companies sometimes reward their customers with discounts for remaining a customer.

How often should you shop for a new car insurance policy?

Experts suggest shopping around every year for auto insurance. That doesn't mean that you'll have a new insurance policy each year. Instead, you get rates from multiple companies to make sure you’re still getting a great deal.

Why should you shop each year? Insurers may change rates. Your driving history may change. The economy can impact rates. Crime in your community can lead to higher premiums.

You just never know. So, if you want the best rate, shop around for a new insurance policy at least every year or two.

If you become complacent, you could end up at some point paying some ridiculously high premium when you could have had a much lower one -- with just as good or better coverage.

Can you switch car insurance when you have an open claim?

Many experts suggest that you shouldn’t switch companies when you have an open claim.

If you want the claim to be resolved to your satisfaction, it's probably going to be less confusing for everyone if you wait until you've received your compensation or it's been determined that you won't be getting any.

Another important reason to wait is that your new insurer isn't going to know what to charge you if you have an open claim. After all, it won't know if this accident or whatever the claim is was something that was your fault or somebody else's. You could wind up with a higher premium with the new insurer than if you had waited until your open claim was closed.

Do car insurance companies refund premiums that were paid?

Yes, most car insurance policies generally return premiums you paid if you prepaid.

Depending on the insurer and the state, there may be a non-refundable fee that you won't get returned to you. Or you may have a car insurance cancellation fee to pay out first, or a short rate fee, which is 10% of the unused premiums.

So one way or another, you'll get most of your unused premiums refunded, but you may not get all of it. Then again, you may receive all of it. As noted, it depends on the insurer and the state you live in.

When should you not cancel car insurance?

There are generally three scenarios when it's best not to cancel car insurance. This doesn't mean you can't do it, but you may want to keep your car insurance for the time being if:

  • You have an open claim. You'll want to wait until the claim has been resolved. Otherwise, you risk having higher rates on your next car insurance policy.
  • There's a "short rate" fee or an auto insurance cancellation fee. You may determine that the fee is pretty small compared to the savings you'll get, in which case, go for it. But the math may work out where you feel it's best to hang onto your car insurance until you're close to the policy’s expiration date.
  • You're extremely happy with your car insurance. Unless you can get a better deal for equal or better protection, you may want to stay with your trusted insurer. Plus, the insurance company may give you generous loyalty discounts.

Can you cancel car insurance if you pay monthly?

Yes, canceling car insurance when you make monthly payments is really no different than if you cancel when you pay in one lump sum. You still have to pay attention to whether there's an auto insurance cancellation fee or a short rate fee (where you pay 10% of the unused premium).

Also, keep in mind that if you can afford to pay your car insurance all at once, for an entire six- or 12-month coverage period, you'll pay less than if you pay car insurance monthly.

So that's something to consider, but you can definitely cancel car insurance if you make monthly payments.

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