Is It Bad to Switch Car Insurance Companies?
Last Updated on May 16, 2021
Different insurance companies charge different prices for car insurance. That’s why some drivers regularly switch between insurers – but is it smart to switch insurance companies?
When done right, switching insurance companies can save you money and help you take advantage of different perks and features. When done wrong, however, switching insurance companies can lead to higher premiums and other penalties.
Today, we’re explaining the pros and cons of switching insurance companies – including whether or not it’s a bad idea to switch insurance companies.
You Can Change Your Car Insurance Policy at Any Time With Minimal Penalty
You can always change your car insurance policy. You can cancel your current car insurance policy today, receive a refund on premiums, and switch to a new company.
Insurance companies have different cancellation policies. Some cancel your policy and refund premiums without penalty. Others keep a portion of premiums or charge a cancellation fee.
Generally, however, you can easily switch to a new insurance company with minimal penalty. In fact, many drivers switch insurers regularly to take advantage of cheaper premiums.
Switching to a new insurance company should not raise premiums. In fact, it should not impact your risk as a driver in any way. When done correctly and avoiding a lapse in coverage, you should be able to make a switch without penalty.
Why Switch Insurance Companies?
The most common reason to switch insurance companies is to take advantage of lower premiums with a different provider. Insurance companies charge vastly different rates for car insurance – even when dealing with the same driver in the same ZIP code.
Some of the reasons to switch insurance companies include:
- A bad customer service or claims experience
- A sudden hike in premiums
- Lower insurance premiums with another provider
- Moving to a new state or city
- Promotional offer from a new insurance company
Some insurance companies prefer insuring older, safer drivers with decades of proven driving experience. Other insurance companies prefer medium or high-risk drivers to balance out the pool. Based on your unique driver profile, you might pay $2,000 per year for car insurance – and just $1,000 per year with another provider.
Many drivers also make the switch because they get the same coverage from any provider. America’s largest insurance companies are very competitive with one another, and there are few significant differences between companies. Some companies offer slightly better discounts or a slightly better mobile app, but you’re generally getting the same car insurance coverage whether you’re working with GEICO, Allstate, Nationwide, or other major providers.
Some people switch to a new insurance company after moving. You might have moved to a new state or ZIP code, for example, which means you can get better rates from a different provider. Some insurance companies only sell insurance in certain states, for example. Others offer good coverage for rural areas – but bad coverage for cities.
Many drivers switch insurance companies simply because they can: in most cases, you can easily switch insurance companies with minimal penalty. A new insurance company might have a promotional offer, for example. Or, you might dislike your current insurer’s mobile app.
Whatever the reason may be, there are plenty of reasons to justify switching insurance companies.
When to Switch Insurance Companies
Timing is important when switching insurance companies. Some drivers time the switch incorrectly, leaving themselves with a lapse in insurance coverage. A lapse in insurance coverage could make you a high-risk driver. You could require SR-22 insurance after a lapse in coverage, for example. Or, the insurance company could see you as a high-risk driver because you haven’t maintained continuous coverage.
Here are things to consider when timing the switch:
When Making a Big Life Change: Generally, it’s a good idea to switch insurance companies when making a big life change. If you got married, moved to a new city or state, or bought a house, for example, then you have vastly different insurance options. Switch to a new insurance company after a big life change – or at least compare options.
After an At-Fault Accident or Violation: Some insurance companies sharply increase rates after an at-fault accident or violation. Other insurance companies ignore one or two minor claims. If you notice rates rise sharply after an at-fault accident or violation, then compare quotes from new insurance companies to save money. Timing also matters – some insurance companies ignore claims older than 3 years old, for example, while others wait 5 to 7 years for an accident to drop off your record. Generally, you’ll pay high rates immediately after an at-fault accident from any insurance company, but you should continue comparing quotes in the years following an accident.
After a Bad Claims Experience: No matter where you live in the United States, you have plenty of car insurance companies from which to choose. If you had a bad claims experience with one insurance company, then you can switch to a different provider without sacrificing coverage. Some drivers switch after a bad claim or a bad customer service experience – and you’re allowed to do that.
After Moving to a New City, State, or ZIP Code: Insurance companies consider your location when assigning insurance premiums. Yes, moving to a new state can impact insurance premiums based on different state insurance laws. But even moving to a new city or ZIP code can significantly impact premiums. Some insurance companies avoid certain ZIP codes based on high crime rates, for example, while others analyze ZIP codes differently.
You Can Switch Even With an Open Claim
Many drivers are surprised to learn they can switch to a new insurance company even if they have an open claim. If you were in an accident and made a claim through your current insurance company, for example, then you can switch to a new insurer – and still have your old insurer process your claim.
Switching insurance companies will not impact any open insurance claims. There’s no penalty for switching with an open claim, and your old insurance company is still required to cover your claim.
In fact, insurance companies might cancel coverage after a serious claim. If you caused one or more serious at-fault accidents, for example, then your current insurer might cancel coverage. Your current insurer is still required to cover that claim – but you need a new insurer.
Avoid a Lapse in Coverage
Switching insurance companies is not a bad idea. However, when done incorrectly, switching insurance companies can lead to a lapse in coverage, and that lapse could leave you dangerously uninsured.
When you have a lapse in coverage, you have no insurance for a brief period of time. If you canceled your old policy on September 1, for example, and bought a new insurance policy for October 1, then you have one full month of lapsed coverage. If you continue driving during this lapse in coverage, then you are driving uninsured, which is illegal in most states. You are also liable for any damage you cause – which could force you to pay millions of dollars out of pocket after a bad accident.
To avoid a lapse in insurance coverage, your new insurance policy must begin on the same day your old policy ends.
Technically, insurance coverage ends at 12:01 am on the final date listed on your policy. That means your new insurance policy needs to start on the same date your old policy ends.
If you cancel your old insurance policy on September 1, for example, then your new policy also needs to begin on September 1 to avoid a lapse in coverage.
If your new policy begins on September 2, then you have a one-day lapse in coverage (on September 1), which means you’re illegally uninsured.
Check your policy and cancellation dates to avoid a lapse in coverage.
Final Word on Switching Insurance Companies
Switching insurance companies is not a bad thing – as long as you time it correctly and avoid a lapse in coverage.
When switching for the right reasons and when timing the switch correctly, you can save a considerable amount of money by switching insurance companies – or take advantage of special features and promotions.
