Auto insurance is proof of financial responsibility for damages and other liabilities in the unfortunate event of an accident. In most of the United States, it is illegal to drive without car insurance. The penalties include punitive traffic tickets and fees, having your license suspended, paying for license reinstatement fees, and even jail time.
Worse still, if you’re involved in an accident, you’ll be liable for damages caused to the other driver’s vehicle and any medical expenses incurred. Even so, there are some reasons that make it sensible to cancel your car insurance. These situations include when you are selling your car, no longer planning to drive, moving to a different state, or switching providers.
In this article, we’ll discuss the right way to cancel your car insurance, the right time to cancel, when your insurer can cancel your policy, and when canceling your policy is not a good idea. As a policyholder, you may cancel your car insurance at any time. Read on for more about canceling your car insurance.
How to Cancel Your Car Insurance Policy
Regardless of the reason for cancelation, the process is always clear and straightforward.
The first step is calling your provider about your intention to cancel the policy. Calling your agent is probably the quickest way to alert your insurer that you intend to cancel the policy. You will find your service provider’s phone number on your insurance card or the agency website. The agent will guide you through the process of cancelation, which can vary from one insurance company to another.
Ask how to formally proceed with the policy cancelation. Companies have different requirements that you won’t want to overlook. Some charge a cancelation fee, demand a signed cancelation letter, or require a notice period. While many providers don’t impose a cancelation fee, others charge about $50 or a “short-rate” fee that is usually 10% of the premiums you would have paid for the remaining policy term.
Mail or fax your signed cancelation request. This is only necessary if your provider requires a signed request to cancel your policy. In your letter, include your full name, policy number, reasons for cancelation, and the date you would like your coverage to stop. Some providers will cancel your car insurance policy right away, while others will need a notice period that is usually 30 days.
Ensure you have a policy lined up to take over from the old plan if you’re simply switching policies. Anything can happen on a given day. You may even consider having both policies overlap for at least a day just to be sure that your vehicle is always covered.
If you’re not comfortable ditching your old provider directly, you can let your new company do the dirty work for you. They’ll need all the information regarding your old policy and before you know it, your association with the old company will be done.
When to Cancel Your Car Insurance Policy
There are several reasons to cancel your car insurance policy, but hitting the road without car insurance just to save on premium costs is not one of them. Ditching your current policy to change providers, by contrast, is a legitimate reason for canceling your car insurance policy.
Unless you are deliberately paying twice for the same insurance protection, then you certainly don’t need your old policy if a new one has taken effect. You can also consider canceling your car insurance when you no longer need it. For instance, if you sell your car and don’t plan to drive in the near future, it would be unnecessary to continue paying for car insurance.
Car insurance is not mandatory in Virginia and New Hampshire, so you could consider canceling your car insurance policy if you’re moving to either of those two states. All the same, you’ll still be on the hook for damages and liabilities in the event of an accident. As such, canceling your car insurance policy simply because you’re moving to one of these states may not be a wise move.
You might be tempted to cancel your car insurance policy because you’re putting your car in storage. However, while the risk of road accidents will be reduced, your vehicle will lose protection against the risks of fire, theft, or damage from falling objects.
What is the Difference between Auto Policy Cancelation and Non-Renewal?
There is a distinct difference between auto policy cancelation and non-renewal. Cancelation can be done by either the insurer or the insured when the policy is still in effect. The policyholder has every right to cancel a car insurance policy at any time when it is no longer necessary to them.
Your insurance provider can also cancel your policy, but it has to give valid reasons for cancelation. Insurers cannot cancel policies that have been in force for over 60 days except in serious cases of insurance fraud and misrepresentations or when the insured fails to stay current on monthly premium payments.
On the other hand, non-renewal occurs when your car policy expires and you don’t plan to renew it, for whatever reason. Your insurer can also decide not to renew your car insurance policy when it expires. Insurers periodically evaluate their customers’ risk profiles and can legally discontinue your car insurance at the end of a policy term when they have reason to believe that you’ve become a significant insurance risk.
Canceling and Switching Your Car Insurance
Canceling car insurance is the termination of an in-force policy by either the insured or the insurer. Your car insurance policy contract allows you to cancel the policy at any time you wish, without having to give a reason. For instance, you can cancel your car insurance when you find a cheaper alternative or if your car has been permanently mothballed.
Switching car insurance, on the other hand, is changing an old provider for a new one. Saving on insurance premium costs is a common reason for switching car insurance. You can change insurance providers at any time, even before your current policy expires.
When Can Your Insurer Cancel Your Policy?
Did you know that your insurer can cancel your policy even before it expires? Below are the situations in which your provider can choose to terminate your car insurance while it is still in effect.
1.When you stop paying premiums
An insurance premium is the amount you regularly pay for insurance coverage. When you stop paying premiums, your policy automatically lapses, and your car loses protection. Any claim made when the policy has lapsed will not be honored. You’ll receive written notices warning you of the impending policy cancelation if you don’t pay your premiums. The process of reviving a lapsed policy can be challenging, so you should make every effort to keep your insurance in force at all times.
2.When you drive under the influence (DUI) or drive while impaired (DWI)
Driving under the influence (DUI) or driving while impaired (DWI) are serious traffic offenses that lead to hefty fines, driver’s license problems, policy cancelations, and even jail. Understand that when you cause an accident when you’re DUI or DWI, the insurance company may decline to settle the claim in its entirety or settle only part of it and leave you liable for costly repairs and liabilities. Some companies will settle the whole claim and then cancel your policy afterward as a punishment. Obtaining auto insurance with a cancelation record by the insurer will be costly and difficult.
When is Canceling Your Car Insurance a Good Idea?
Canceling your existing car insurance policy can help you save money on insurance. It can also afford you better coverage from a different service provider. Listed below are situations when canceling your car insurance policy may be a good idea.
1.When switching policies or insurers
Car insurance premiums vary from one provider to another; if you shop around, you’ll likely discover cheaper alternatives than what you’re currently paying. The best part about car insurance contracts is that the policyholder is allowed to change providers at any given time, even when the old policy is still in effect.
To switch providers, you should terminate the old policy and sign a contract with the new provider. Swapping insurers to save on car insurance costs is a common reason for policyholders to cancel their policies. Your area of residence plays a major role in determining how much you will pay in premiums. You could consider switching insurers if you move and a provider in your new area offers a less expensive policy with better coverage.
2.When getting rid of your car
Your car is the only reason you have car insurance in the first place. If you get rid of that car, then car insurance won’t be necessary. However, if you plan on using a rental car occasionally, then you might need to reconsider the decision to cancel your car insurance. This is because the comprehensive and liability coverages on your personal car may extend to rental cars of similar value. You need to ask your insurer whether its coverage includes rental cars or is limited only to the car you have specified in the policy.
When Is Canceling Your Car Insurance a Bad Idea?
Canceling your car insurance is not always a good idea, especially if you still plan to drive. Listed below are three instances when canceling your car insurance is a bad idea.
1.Moving to a state that does not require car insurance
While car insurance is not mandatory in Virginia and New Hampshire, at-fault drivers take full financial responsibility for damages and liabilities in case of an accident. Unless you don’t mind the risk of incurring heavy fines, enormous repair costs, and staggering medical expenses, we suggest you keep your insurance coverage, even if you live in Virginia or New Hampshire.
Drivers without insurance in these states pay out of pocket for repairs and medical costs, which are massive expenses that will undoubtedly shake your finances. Just because you won’t get a ticket for driving without car insurance in these two states doesn’t mean you should risk everything by driving without it because you won’t avoid liability if you are held responsible for causing an accident.
2.When your car is in storage
Although it is tempting to think that a car in storage is completely out of insurance risk, this is not always the case. True, you may not bump into another car, but that is only one insurable risk averted. The car could get stolen, burned, or damaged by falling objects, among several other risks. The bottom line is that a car in storage is not entirely safe, so terminating its insurance coverage entirely is not rational. You could consider dropping some parts of the coverage that are not necessary when a car isn’t in active use, such as collision coverage.
3.When you hardly drive
Canceling your car insurance because you rarely drive is not a good idea because it creates a lapse in your car insurance history and could subject you to higher rates in the future if you need a new policy.
Individuals who rarely drive are low-risk drivers eligible for lower rates through pay-per-mile insurance coverage. This type of coverage lets drivers pay for insurance based on how much they drive. The logic behind it is that drivers who are on the road the most are at a higher risk of being involved in an accident than those who rarely drive.
Will You Get A Refund After Canceling Your Car Insurance?
If you paid your premiums upfront and then decide to terminate the policy before the end of the term, you’ll be eligible for a refund of the balance. Providers will prorate your refund based on the number of days the car insurance policy was in force; however, most insurers won’t refund premiums for the last two months of the policy. For example, if you cancel when the policy still has seven months to go, you are likely to only receive a refund for five months.
A refund is only applicable for premiums paid in advance. Providers may charge cancelation fees to cover administrative costs for policy cancelation and refund the unused premiums. You can make a formal complaint against insurers who decline to issue refunds.
Conclusion and Recommendations
There are several instances in which policy cancelation is a good idea and others where cancelation is not logical. Never prioritize saving a few dollars over protecting yourself against liability. If you have to cancel your car insurance, ensure that you follow the correct cancelation steps to avoid ending up with a lapsed record. At MoneyWizard.co, we strongly recommend that you consult an insurance expert before canceling your car insurance policy.