Thinking of cancelling your auto insurance policy? Whether you’re trying to secure a lower rate or giving your car away, there are many reasons to consider cancelling your coverage before the end of the term.
Fortunately, you can cancel your car insurance at any time. In most cases, ending your policy early means you’ll be exempt from future payments, or if you pre-paid, you’ll receive a prorated refund for the remainder of your policy.
However, your terms may vary by carrier, and cancelling insurance without another policy in place can lead to serious consequences. Let’s explore what you need to know when it comes to cancelling your auto insurance policy.
Note: These tips should not be considered official insurance guidance. Please consult an insurance professional or broker when making decisions regarding insurance.
What Happens When You Cancel Your Insurance
The first thing that happens when you cancel your insurance is that your coverage ends, which means you’ll no longer be protected against risks that were previously covered by your policy. If you need your insurance to remain active for a specific period— perhaps until a new policy becomes effective— you can ask your carrier to schedule your cancellation for a future date.
Once your policy is officially cancelled, you’ll stop being charged for premiums. If you’ve paid in advance, your carrier will typically issue a prorated refund for the unused portion of your policy term. For example, if you paid for six months of coverage but cancelled after four months, you should receive a refund for the remaining two months.
However, in some states, early cancellation may come with financial penalties. Some insurance carriers charge an early cancellation fee as a flat rate. Others implement what’s known as a “short-rate” cancellation fee, which requires you to pay a percentage— commonly around 10%— of the unearned premium.
Consequences of an insurance lapse
If you’re thinking of cancelling your insurance policy without securing a new one, it’s important to be aware of how an insurance lapse could impact you in the future.
Repossession Risk
If your vehicle is financed or leased, your lender likely requires comprehensive and collision coverage. Cancelling your policy– even if you’re not driving it– could violate your financing agreement, potentially resulting in repossession.
Legal Violations
Nearly every state requires liability insurance to legally drive. Driving without insurance can result in major consequences, including fines, license suspension, vehicle impoundment, or even jail time.
Higher Future Premiums
Even if you’re not driving during the lapse period, insurance companies view gaps in coverage as a risk factor. In fact, data shows that insurance lapses can increase premiums by an average of $218 per year when you obtain coverage again.
When It’s OK to Cancel Your Auto Insurance
Although it’s important to weigh the downsides before cancelling your auto insurance, there are many scenarios in which it’s the best decision.
Switching carriers for a better deal
Many drivers shop around for better rates, especially as their renewal date approaches. Insurance experts recommend comparing quotes 6-8 weeks before your current coverage expires to ensure you find the best deal– and sometimes you’ll want to jump on it before your current policy expires.
However, in this situation, you’ll likely want to check with your carrier before doing this to make sure there’s no fees associated with early cancellation. Otherwise, you might end up paying more than you’d save.
Joining another person’s policy
If you get married or move in with family members who have their own insurance, you might consider cancelling your individual policy to join theirs. Remember that insurance follows the vehicle, not the person, so make sure your vehicle gets added to the new policy.
Moving to a new state
When relocating to another state, you may need to cancel your current policy if your insurer doesn’t operate there or if premiums would increase significantly. Be sure to understand the insurance requirements in your new state and whether you need overlapping coverage during the transition.
Getting rid of your vehicle
If you’re selling your car and not replacing it, you may want to cancel your insurance. However, be sure to maintain coverage until you’ve completed the bill of sale and transferred the title to avoid liability gaps.
Considering Non-Owner Car Insurance
If you’re between vehicles but still need to drive occasionally, non-owner car insurance might be worth considering. Because you’ll still be insured, this option helps prevent premium increases in the future due to a coverage lapse. It can also provide liability protection when driving vehicles you don’t own, such as a friend’s car or rental.
Cost considerations
Non-owner policies, while less expensive than full coverage car insurance, still pose a significant cost. According to estimates by MoneyGeek, the average policy costs $414 per year for drivers with clean records and $576 for those with at-fault accidents.
Since this expense can add up, it’s most practical for situations where you expect to be without a vehicle for a relatively short time. Before purchasing, calculate whether the cost of the non-owner policy would be less than the potential premium increase from having a coverage gap.
How to Cancel Your Car Insurance Policy (The Right Way)
When it’s time to cancel your auto insurance policy, the process to do so is pretty simple. However, specific protocols may vary depending on your insurance carrier, so it’s always best to call and check.
1. Contact your insurance company
Call your provider to understand their specific cancellation process. Some accept cancellations by phone or online, while others require written notice or signed documents. Ask about details including required notice period, cancellation fees, and how refunds are calculated.
2. Set up new coverage first
If you’ll still be driving, secure your new policy before cancelling the old one in order to avoid a lapse in coverage. Schedule the new policy to begin the same day your old policy ends, and hold onto the documentation in case you need to provide proof.
3. Get written confirmation
Once you’ve cancelled your policy, request written confirmation that your policy has ended. Keep it for your records, and be ready to present it if there are any hiccups with your cancellation, such as continued billing.
4. Avoid cancellation by non-payment
Oftentimes, when you stop paying your auto insurance, your carrier will offer a grace period (typically up to 30 days) before cancelling your policy. While it may be tempting to just stop paying your premiums, this approach isn’t recommended.
In addition to the unnecessary charge during the grace period, this can lead to consequences including:
- Continued billing if the policy doesn’t automatically cancel
- Higher rates on future policies due to cancellation for non-payment
- Potential credit impacts
Final Thoughts
By understanding the proper way to cancel your auto insurance and the alternatives available, you can make an informed decision that protects both your finances and your driving privileges. Remember that while you can cancel at any time, doing so thoughtfully is key to avoiding unnecessary complications.
