Are There Fees to Cancel Car Insurance? Cancellation Fees Explained
Last Updated on November 2, 2020
There are plenty of reasons to cancel car insurance. Maybe you’re moving to a new state. Maybe you’re switching to a cheaper company. Do you have to pay a fee to cancel car insurance? Today, we’re explaining everything you need to know about car insurance cancellation fees.
The car insurance cancellation process is typically simple. Technically, you can cancel your car insurance policy at any point. However, to avoid extra fees, we recommend planning car insurance cancellation in advance.
Keep reading to discover how to cancel car insurance – including the types of cancellation fees you can expect to pay.
You Can Cancel Car Insurance Anytime
Technically, you can cancel car insurance coverage at any point. However, your insurer may charge extra fees if you cancel car insurance immediately.
Some car insurance companies have cancellation fees if you suddenly cancel your policy. Some insurers charge a flat-rate fee. Others charge a percentage of your overall premium cost.
However, insurers do not typically charge cancellation fees for standard cancellations.
Please note that cancellation policies vary widely between insurers. Some insurers have strict cancellation policies, while other insurers have generous policies. Check your policy or contact your insurer to determine the best path forward.
Cancellation Fees and Policies by Company
| Insurer | Is There a Fee? | Cost | Other |
|---|---|---|---|
| 21st Century | Yes | $50 | Varies by state |
| AAA | No | None | Pro-rated |
| Allstate | No | None | Pro-rated |
| American Family | No | None | Pro-rated |
| Dairyland | Yes | Unknown | Ask Agent |
| Erie Insurance | No | None | Pro-rated |
| Esurance | Yes | $50 | $50 fee or 10% of remaining balance |
| Farmers | No | None | Pro-rated |
| GEICO | No | None | Pro-rated |
| Liberty Mutual | No | None | None |
| Mercury | Yes | 10% of remaining balance | If you owe $300+, there is a $30 penalty. |
| MetLife | Yes | 10% of remaining balance | Ask Agent |
| Nationwide | No | None | Pro-rated |
| Progressive | No | None | Pro-rated |
| Safeco | No | None | Pro-rated |
| State Farm | No | None | Pro-rated |
| The General | Yes | 10% of remaining balance | If you owe $300+, there is a $30 penalty. |
| The Hartford | No | None | Pro-rated |
| Travelers | No | None | Pro-rated |
| USAA | No | None | Pro-rated |
Cancellation Penalties: Pro-Rating Versus Short-Rating
Most insurance companies deal with cancellation fees in two ways: short-rating or pro-rating.
Pro-Rating: Pro-rated cancellation gives you back the full amount of the unused premium.
Short-Rating: Short-rated cancellation policies take a certain amount out of the refund as a penalty for early cancellation.
Let’s say your insurer uses a pro-rated system. If you have a 12-month policy and cancel after four months, then you will receive back eight months of insurance premiums. If your insurer uses a short-rated cancellation fee system, then you will lose some of the remaining premium.
Specific short-rating fees depend on the policy. Generally, short-rating fees are higher if you cancel early in your policy.
Common Cancellation Policies for Insurers
Most car insurance companies do not charge cancellation fees.
However, some insurers charge a flat cancellation fee of $50.
Others charge a short rate fee of 10%, which means you need to pay a 10% fee on the remaining policy you signed up for. If you canceled a six-month insurance policy after five months, for example, then you would be required to pay 10% of the premiums you would have paid in the sixth month.
What Happens If I Still Owe Money on my Policy?
Many policyholders still owe money to their insurer after canceling a car insurance policy.
Let’s say you cancel car insurance within the grace period. The grace period is a length of time set by your insurer after your payment due date. You still have insurance coverage during your grace period – even if you haven’t paid your latest insurance premium bill.
A typical grace period is 14-21 days. However, the grace period does not mean you get a few free weeks of coverage just by switching insurers. If you switch to a different insurer during this grace period, then you may need to pay for coverage you used during this period. You used the coverage, and you need to pay for it.
There is an exception to this rule: if you switched to another insurer during the grace period and can prove you had insurance coverage during the grace period, then your old insurer may not charge extra.
When Is the Best Time to Cancel Car Insurance?
The best time to cancel your car insurance is after you have already purchased another policy.
You can switch to the other policy at any time, although the best time is during the renewal period when your old insurance policy is up for renewal.
Go through the entire process of purchasing another car insurance policy, then make your first payment. Only then should you cancel your existing policy.
Alternatives to Canceling Car Insurance
You may not need to cancel your car insurance policy. There are other options.
Drop Collision and Comprehensive Coverage: Dropping collision and comprehensive coverage from your insurance can cut insurance costs in half. You may not need collision and comprehensive coverage on older vehicles.
Reduce Liability Coverage: Every state has minimum-required liability insurance limits. Most insurance policies exceed these limits. Consider dropping your liability limits to reduce the cost of premiums.
Buy a Non-Owners Policy: Some people maintain car insurance coverage even when they don’t have a vehicle. Buying a non-owners policy helps you maintain continuous insurance coverage. It also protects you when driving a rental car or a friend’s vehicle.
Don’t Let Car Insurance Lapse
The biggest concern when canceling auto insurance isn’t with cancellation policies: it’s with car insurance lapses.
If you stop paying your insurance premiums but continue to drive your vehicle, then your car insurance has lapsed. You do not have insurance coverage.
Similarly, if you cancel your old insurance policy but do not buy a new policy, then your car insurance has also lapsed.
When your car insurance has lapsed, you are exposed to significant risks. If you cause an accident, then you may need to pay for all accident-related expenses out of pocket. Similarly, if you are pulled over by law enforcement, you may face fees, fines, or vehicle impoundment.
Final Word on Auto Insurance Cancellation Fees
Most insurers do not charge cancellation fees for standard cancellations, although cancellation policies vary widely among insurers.
Some insurers use a pro-rated system to return any unused insurance premiums, while others use a short-rated system, where they charge a fee on your remaining insurance premiums.
Contact your insurer or check your policy documentation. Cancellation fees vary widely between insurers.
