Do You Get a Refund for Unused Premiums After You Cancel Your Car Insurance?

Last Updated on June 26, 2023

You can cancel your car insurance policy. But do you get a refund on unused premiums after you cancel car insurance? Or does your insurance company keep the money?

Most insurance companies give you a refund on unused premiums after you cancel car insurance. In fact, many insurance companies do not charge any cancellation fee whatsoever. You can call your insurance company to cancel your plan on a specific date, and you will receive a refund on any premiums you have already paid after that date.

Cancellation policies vary among insurance companies. Today, we’re highlighting what happens to your unused insurance premiums after you request a refund.Do You Get a Refund on Unused Premiums After Canceling Car Insurance?

Table of Contents:

Yes, Most Insurance Companies Provide a Refund

Most insurance companies in the United States have similar refund policies.

Generally, state laws allow you to cancel your auto insurance policy at any time for any reason, then receive a refund on any premiums you have already paid.

In some states, insurers are permitted to charge a cancellation fee. In other states, insurers keep a certain percentage of your prepaid premiums (say, a 10% fee).

Generally, however, you will receive a refund on unused insurance premiums in most states after cancellation, and you typically receive a refund on all of your premiums – or at least the majority of your premiums.

In fact, if you have canceled auto insurance and have not received a refund, then you may be legally entitled to a refund. Your state’s insurance laws may allow you to request a refund and receive 100% of your unused premiums back.

How Car Insurance Refunds Work

Car insurance refunds are pro-rated based on the date you cancel coverage.

Let’s say you pay $300 per month for car insurance. You prepaid your car insurance premium for March on April 1, and you canceled your policy on April 10. You used 10 days of car insurance coverage but paid for 30 days of coverage for the entire month of April. Your insurer will provide a $200 refund for the 20 days of unused coverage.

Most insurance companies use this pro-rated method to calculate car insurance refunds.

This same pro-rated refund policy applies to annual or semi-annual car insurance policies. It also varies based on the number of days in the month. If you paid $300 for car insurance in March, for example, and canceled your policy on March 10, then you would receive a refund of $203.28. You paid $300 for 31 days of car insurance, or $9.68 per day. You canceled your policy with 21 days remaining, so you’re entitled to a refund based on that number.

Do All Insurance Companies Issue Refunds?

Most insurance companies in the United States issue refunds on any policy premiums you have paid upfront, assuming you do not intend to use your remaining coverage.

However, most states do not have any specific laws requiring refunds. Insurance laws are made at the state level. Most states do not have any specific policy regarding refunds on unused premiums.

However, some states mention refunds in their insurance laws. The Texas Department of Insurance, for example, requires refunds when an insurance company charges excessive rates or when policies are canceled within a specific window of time after purchase.

State insurance laws are deliberately open-ended with refund policies because insurance is an open-nature industry. Insurance companies collect premiums, then pay claims from their pool of cash. Insurance companies invest this money in various securities, theoretically earning a profit from the premiums you pay.

Let’s say you pay for a one-year policy upfront. You request a refund halfway through your policy. Your insurer will still provide a refund, although it could disrupt operations if many customers request a similar refund at the same time.

Ultimately, insurers walk a fine line to remain profitable, although most insurance companies continue to provide refunds with no issue.

How Long Does a Refund Take?

Some states require insurers to pay refunds in a specific length of time. Generally, state insurance laws require insurers to respond to all customer requests in a timely manner. Some states even require a specific payment period – say, within 30 days of receiving your cancellation request.

You should expect to receive a refund from your insurance company within 30 days of closing your account. Many insurance companies pay refunds much sooner.

Cancelling Car Insurance Within 14 Days

In most states, insurers have a grace period during which you can request a refund with no penalties or charges.

States call this a ‘cooling-off’ period. You can cancel any agreement within 14 days of signing up without additional charges.

If you choose to cancel car insurance beyond this 14-day window, then you could face additional fines and penalties. Generally, however, insurance companies are happy to provide a complete, pro-rated refund upfront.

Beyond this 14-day period, insurance companies allow you to cancel auto insurance policies at any time during the life of the policy – in most situations. You may face additional cancellation requirements (like a letter) for canceling beyond the 14-day window, but you should still receive a refund on all unused premiums.

My Insurer Hasn’t Paid My Refund: What Next?

If your insurance company has not sent a refund, then you can take several actions:

Call your Insurer: It’s possible your refund is coming. Or, it’s possible your refund has been lost in the system. Call your insurance company to see if there’s any update on your case. If your insurer continues to insist your refund is coming, but it’s been several months without a refund, then consider taking further action.

Write a Certified Letter: Consider sending a certified letter to your insurance company demanding payment of your refund.

Call your State’s Department of Insurance: All states have a Department of Insurance. This agency is responsible for overseeing insurance companies. If an insurance company is acting in bad faith, then your state’s Department of Insurance will take action.

File a Complaint: File a complaint to the National Association of Insurance Commissioners (NAIC), the Better Business Bureau, or local review websites to warn other customers of your experience – and encourage the company to take action.

Some Insurers Charge Cancellation Fees

In most states, it’s completely legal for an insurer to charge an early termination fee or cancellation fee. Some insurers charge a cancellation fee of $20 to $50. Others keep a percentage of your previously paid premiums – say, 5% to 20%.

Despite the fact that it’s legal, most insurance companies do not charge any type of cancellation fee.

If your insurer decides to charge a cancellation fee, then you could owe your insurance company money after requesting your refund. Your insurer could deduct this money from your refund. Or, your insurer could require you to pay a fee. If you decide not to pay this fee, then your insurer could send the fee to a collections agency and require you to pay it.

Cancellation Fees by Insurance Company:

Check Your Policy for Cancellation Fees

Not sure if your insurer charges cancellation fees? Consider contacting your insurance agent. Or check your policy for cancellation information.

All insurance policies will list the refund policy somewhere within the documentation.

Some policies will list a specific cancellation fee. Others will explain the percentage of paid premiums kept after cancellation.

Final Word on Refunds for Unused Premiums

Yes, you should receive a refund for unused premiums after you cancel your car insurance. Most insurers will provide a complete, pro-rated refund based on the date on which you cancel your car insurance.

Contact your insurance company to initiate the refund process. Most insurers make it easy to cancel over the phone, although some require you to send a letter verifying the cancellation.

James Shaffer
James Shaffer James Shaffer is a writer for and a well-seasoned auto insurance industry veteran. He has a deep knowledge of insurance rules and regulations and is passionate about helping drivers save money on auto insurance. He is responsible for researching and writing about anything auto insurance-related. He holds a bachelor's degree from Bentley University and his work has been quoted by NBC News, CNN, and The Washington Post.
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