Do You Get a Refund on Unused Premiums After Canceling Car Insurance?
Last Updated on October 16, 2020
So, you’ve canceled your car insurance. Maybe you got a better rate elsewhere, or you sold the vehicle. Maybe you’re storing your summer fun car for the winter. Most insurance companies request a minimum one-year term policy, so you should get a refund on the unused amount, right? Keep reading to find out.
Table of Contents:
- Whose idea is it to cancel?
- What are the terms of your insurance policy?
- So, how do I cancel my car insurance?
- When will I receive my refund?
- What if I disagree with my refund?
- How is COVID-19 affecting car insurance?
Whose Idea Is It to Cancel?
Depending on whether canceling was your idea, or someone else’s could make a difference. If it’s your idea, then you are legally entitled to most, if not all of your unused payments. But what if the insurance company cancels the contract? Have you defaulted on payments? Have you experienced a DUI, accumulated too many speeding tickets, or been charged with reckless driving or a similar offense?
Obviously, if the insurance company canceled due to non-payment, you won’t be receiving any refunds. But if it’s the sale of the vehicle, or even if it’s a driving infringement (like a DUI, multiple accidents, excessive tickets, or dangerous driving), you are still entitled to the refund.
What Are the Terms of Your Insurance Policy?
If you pay your insurance policy month-to-month, then there is no unused portion, other than a few days before the next payment installment. Some companies will simply cancel at your request and not take the next payment. But they may not send you a refund for a period of less than 30 days. Check your policy for their policy.
Many people pay upfront for the year since many companies provide discounts if you do. In that case, you should receive all unused premium funds from the day you cancel, not the next payment date; it doesn’t matter whether you or they do the canceling.
Some insurance companies will offer six-month insurance policies for vehicles that are only used during certain periods of the year. If you are storing your vehicle in your garage you will still need some limited coverage (such as fire and theft), but it will be less than a full-coverage annual policy. If you informed your insurance company of your plans prior to signing your contract, then they will comply and your monthly premiums will reflect the change in coverage when you notify them. The change usually won’t take effect until the next monthly payment, however, so make the call about a week before your next payment date.
Some vehicles don’t qualify for this reduction in coverage (motorcycles for example), and protocols differ from company to company, so be sure to ask if it’s possible. Some companies will allow you to have one policy for two vehicles. You simply call them when you want to take insurance off one and place it on the other (a sports car for summer and a four-wheel drive for the winter, for example). Be sure to explain that you still want basic theft and fire coverage for whichever vehicle is stored. For those in warmer climates, of course, this has no relevance. Just shake your head and feel sorry for those living in northern states.
So, How Do I Cancel My Insurance?
A simple phone call should do the trick, though the insurance company will want a signature to finalize the deal. You can skip to that part by simply sending them a fax/email with your name, policy number, and a signature. If you have an agent, you can contact them and have them do all the dirty work, but regardless of the method you use, be sure you receive a confirmation, in writing, that the policy is canceled, and—if a month-to-month contract—that no more payments will be taken. Be sure you’re not on an auto-renew set-up also. Even if you cancel now, your policy could renew on its own on the original renewal date. It’s all automated remember. You need to ensure a human makes the change and sends you written notice of the same.
If you don’t request a cancellation and simply let your policy cancel on its own, it will be canceled for non-payment. Some policies automatically cancel if payment is not received but many give a grace period of twenty days or so to allow you time to make a payment up. If you don’t respond to payment requests, you will be billed for that grace period and the insurance company can hand over your account to a collection agency for payment. Even if you’ve entered into a new policy with a new company, you’re still liable for that grace period.
If your car is a leased vehicle, you cannot let your policy simply lapse as the leasing company will eventually be notified. This allows them to automatically begin the process of repossessing the vehicle, even if you’ve simply switched companies. Of course, you should have told the leasing company about the change of insurance companies anyway, as it will be part of your leasing contract, but sometimes automatic protocols are initiated regardless of your conversations with them.
When Will I Receive My Refund?
Obviously, it depends upon the company and your particular contract. Read it over and you’ll find out if you have to rely on snail mail or if the company uses electronic fund transfers (EFT), in which case you’ll receive the funds within 10 days or so. This is also a good time to check to see how much of a refund you can anticipate. Some companies charge cancellation fees which are taken directly off your refund amount. This is common with month-to-month policies. In some cases, this may null the savings you think you’re receiving when changing companies.
Some people are shocked to find that they actually owe the insurance company money when they cancel. If you cancel before making a payment for your next month, for example, your insurance company may demand additional funds. Even if you’re up-to-date on payments, you may still owe them money due to cancellation or ‘administration’ fees. Read your policy so you’re not surprised.
What if I Disagree With the Refund?
Maybe you think you should get more money back. Some insurance companies operate in such a manner that they push back when a cancellation is requested. They may deny a refund for various reasons but unfortunately for these companies, the consumer has options. Different states have varying options for customers who disagree with their refunds. Drivers in Massachusetts, for example, can appeal a cancellation refund to the Massachusetts Division of Insurance Board of Appeals. Many states have similar departments. A Google search for Auto Insurance Appeals will inform you of your rights in your state.
How Is COVID-19 Affecting Insurance?
It may be interesting to note that most major insurance companies are offering partial refunds on car insurance premiums due to the pandemic outbreak. They are pausing non-payment policy cancellations and late fee charges. If the coronavirus has affected your ability to pay your premiums, or even if you are not driving as much as usual, you may be entitled to a reduced rate, or even a refund. Contact them directly to find out what their policy is before you decide to cancel. You may be surprised to find out that they may reduce payment amounts to coincide with your new vehicle usage.
Final Word on Auto Insurance Refunds
US law requires insurance companies to provide refunds when the coverage is no longer needed. However, you need to read your policy and decipher what fees or payment protocols may be activated when you cancel. Despite the legal requirement to provide refunds, the actual refund amount will vary from company to company, based on their own policies concerning cancellation fees, non-payment fees, or administration fees. Read your policy before you cancel so you know exactly what you are entitled to.