Cash News
There are many reasons you might need to cancel your car insurance. Whether you’re preparing for a big move, buying a new car, or just trying to save money, you’ll be relieved to know that the cancellation process for auto insurance is relatively straightforward.
However, there are steps you should take to avoid any financial fallout with your car insurance company — or worse, leave yourself uninsured on the road. Let’s take a closer look at how to cancel your car insurance, some of the more common reasons you might need to change your current coverage, and whether canceling your existing policy could result in a cancellation fee.
For the most part, canceling a policy with your insurance provider is a simple process with minimal financial risk. But there’s an important caveat: You should avoid an insurance lapse at all costs.
The best way to avoid an auto insurance gap? Purchase a new car insurance policy from a licensed insurance agent or reputable company before you stop coverage or cancel your old policy.
Lapses in liability insurance do more than result in higher premiums. The insurance industry reports gaps in coverage to each state’s department of motor vehicles. Since most state laws make it a crime to drive without some level of liability coverage, letting your car insurance lapse could result in having your vehicle registration or driver’s license suspended, a ticket or fine, or even jail time.
Read more: What happens if you don’t have car insurance?
Once you have new coverage or determine you don’t need to maintain coverage, contact your current insurer to make a cancellation request. Do not simply stop paying the insurance premiums, as that may trigger the company to report a lapse in your coverage.
Every insurance provider has a different cancellation process, so this is where it pays to read the fine print and speak to a representative. Some insurers charge cancellation fees or give a prorated refund or a policy credit on the unused portion of car insurance coverage if you paid in advance.
Some insurance companies require a formal cancellation letter or a 30-day cancellation notice to terminate your car insurance coverage. Others will allow you to speak to an agent or simply fill out an online form, and they will generally send a cancellation confirmation.
Regardless of your insurer’s cancellation process, verify that the policy has been terminated with an assigned cancellation number, email, or letter that includes the effective cancellation date and policy number for your records.
Whether you want to switch insurers to save money or you’re giving up your car or taking an extended vacation, you can cancel your car insurance coverage at any time. But since gaps in coverage have serious consequences, it may not always be worth the risk (or the potential fees) to terminate your current policy.
Instead, you could suspend or drop certain types of coverage with the same company. Just keep in mind that if you haven’t paid off your car loan, with some types of auto financing or leasing, the lender requires you to maintain full coverage, including comprehensive insurance and often gap insurance.
There are many reasons for canceling your car insurance. Here are some of the most common:
If you recently sold your car and don’t plan to invest in a new set of wheels, you might be eager to drop your insurance. Sit tight until the title is transferred to the new owner, and you submit any necessary paperwork or turn license plates over to the DMV (Department of Motor Vehicles).
However, if you think there’s a chance you’ll get a new car soon, consider changing your coverage to a non-owner policy. This could help you avoid an insurance lapse and fend off any rate increases or loss of a multi-policy discount.
Don’t plan on driving temporarily for health or other reasons? Before you cancel insurance, consider suspending your insurance with your carrier or switching to a parked vehicle or stored vehicle policy.
Moving to a different state? Most insurance products work similarly no matter where in the country you live. But check with your insurance company to ensure they operate in your new state and that your current coverage aligns with state insurance laws.
But if you’re moving outside the United States, it’s likely you’ll need to find a new insurer or at least adjust your coverage.
Hanging up your keys for a while or headed into wedded bliss? A change in marital status often means either you’ll add someone to your policy or they’ll add you to theirs. Newly married and now residing at the same address? A cancellation or change to your current coverage may even be required.
If, on the other hand, you’re planning on casually driving someone else’s car without your own insurance coverage for a significant length of time, consider short-term or temporary car insurance.
If you’re considering switching insurers, the best time to do so is a few weeks before your current policy is set to renew or expire. Before you trade in your current insurance card for a better rate or lower deductibles, make sure you won’t be losing money through cancellation fees.
The best way to avoid a dreaded lapse in insurance (or pay more than you should for overlapping policies) is to ask your old insurer to cancel your auto insurance coverage on the start date of your new policy.
Read more: How to save on car insurance in 2024
If you go out and get a sparkly new car insurance policy and leave canceling the old one in your pile of things to do, you might end up in trouble for not paying.
Failing to pay premiums usually causes your car insurance company to cancel your policy after a grace period of anywhere from 10 to 25 days. This could result not only in late fees and other charges, but make it difficult for you to find an auto insurer in the future.
Whether you have to pay a cancellation fee for ending your insurance coverage before the policy expires depends both on your insurer and on the state you live in.
Depending on state laws, cancellation fees can be charged in two ways: short-rate or flat fees. Short-rated cancellations usually charge the policyholder around 10% of the unearned premium, which is then subtracted from any refund owed.
Flat fees for policy cancellation are exactly what they sound like and usually involve paying a one-time fee of anywhere from $30 to $50.
What if the insurance company cancels your policy? Yes, this can happen. However, the Insurance Information Institute states that after your policy has been in effect for 60 days or more, the only reasons your coverage can legally be canceled include non-payment of premiums, driver’s license suspension, or serious fraud or misrepresentation on your insurance application.