Whether you're switching to a better deal, selling your car, or moving somewhere you don't need coverage, you have the right to cancel anytime.
This article will walk you through the cancellation process, help you avoid penalties, and ensure you handle everything properly.
Check Your Policy for Cancellation Terms
Once you decide you want to cancel your auto insurance, take a close look at your policy and read the fine print. “Check for cancellation fees—some carriers charge them, others don’t,” says Erika Tortorici, owner and principal of Optimum Insurance Solutions.
Also, make sure you’re aware of how your car insurance company handles refunds in the event of a cancellation. Refunds are usually prorated, minus any premium owed or fees, but this will depend on your insurer.
For example, if you cancel three months into a six-month plan you paid $800 for, you'll receive $400 back from the insurance provider.
When to Cancel Car Insurance
Several situations may warrant a car insurance cancellation, such as:
- Moving to a new state: If you're relocating to another state, it might make sense to cancel your current coverage since location plays a huge role in premiums. Car insurance requirements also vary from state to state, so you might need a new policy that adheres to the laws in your new location.
- Selling your vehicle: You may sell your car because you're moving to an urban area with public transportation or are no longer able to drive. As long as you won't replace it, you can cancel your car insurance plan. Just make sure to do it after the new owner has possession of your vehicle and the title has been transferred to them.
- Finding lower rates: Car insurance rates vary by provider. If you shop around top car insurance companies and find that another company offers a better deal on the same coverage, switching insurers can be a smart move.
- Changing coverage needs: You may find that your current optional coverage is unnecessary for your vehicle or financial situation. If so, you can cancel your policy and reduce your coverage to save money. However, weigh the pros and cons before going this route.
- Life changes: Marriage, moving back home with parents, or other life changes might mean you'll be covered under someone else's car insurance plan. As long as you do the math and make sure it makes financial sense, you may want to cancel your existing coverage.
Steps to Cancel Car Insurance
Follow these simple steps to cancel your auto policy:
Step 1: Lock In New Coverage
While it might be tempting to cancel your current auto insurance as soon as possible, it's essential to wait until you secure a new plan. Otherwise, there may be a lapse in your coverage.
A lapse can result in serious financial consequences, and it's illegal to drive without insurance in most states.
Step 2: Contact Your Insurer
Once you have new car insurance, reach out to your car insurance company directly. Depending on the insurer, you may call them, send an email or formal letter, or use their mobile app. You might also be able to work with a local agent or visit a nearby office.
Step 3: Gather Required Information
Most insurance companies will ask for your policy number, personal information, the date you want to end your coverage, and the reason for the cancellation. You'll typically need to complete a form or write a cancellation letter to finalize the process.
Step 4: Request Written Confirmation
Don't assume your car insurance has been cancelled. Make sure your insurer sends you formal cancellation documentation. This should include the cancellation date and details about any refund you're owed. If you have autopay set up, confirm when the payments will stop.
Step 5: Notify the DMV If Required
Depending on your state, you may need to inform the Department of Motor Vehicles (DMV) about the cancellation. This is often required when moving to a new state, surrendering your car registration, or placing your vehicle in long-term storage.
How to Avoid Penalties and Fees When You Cancel Your Car Insurance
By being proactive, you can cancel your auto insurance coverage without costly fees and penalties. Here are a few car insurance tips to help you do just that.
Understand the refund policy: Get familiar with how your insurance company handles refunds. Typically, refunds are prorated, so you’ll get money back based on when you cancel rather than owe a cancellation fee.
Consult your agent: If you have a car insurance agent and know you want to cancel your policy, let them know. They can provide you with guidance and help you avoid penalties. Plus, they might be able to help you secure new coverage before starting the cancellation process.
Consider the 30-day free look period: “If possible, cancel within the 30-day 'free look' period to avoid penalties with most insurers,” explained Tortorici. This is where you can review and cancel your auto insurance at the very beginning of your coverage. If you think it’s not a good fit within 30 days, you’ll get a full refund.
What Happens After Car Insurance Cancellation?
“Canceling your car insurance can negatively impact your insurance history, putting you in a 'no prior' status, which often results in higher rates when you go to purchase a new policy,” said Tortorici. For this reason, it’s best to determine why you want to cancel and whether it makes more sense to continue your coverage until it expires.
If you plan to replace your vehicle within 60 days, it’s usually more cost-effective to keep your policy active, even at minimum coverage levels. Tortorici also reinforces the importance of maintaining continuous insurance, as it allows you to secure better pricing than you’d be able to if you start fresh with no prior coverage.
Alternatives to Car Insurance Cancellation
Fortunately, you may be able to get around canceling your policy, depending on your situation.
“If you're between vehicles or temporarily not driving (like traveling or car shopping), you can lower your coverage to state minimums instead of canceling,” explains Tortorici.
While most carriers don’t allow policies to be fully suspended, reducing coverage is a practical way to maintain continuous insurance and avoid higher rates later.
Frequently Asked Questions
Can you cancel car insurance at any time?
Yes, you have the right to cancel your auto policy whenever you want. However, depending on your insurer and timing, you may face cancellation fees and other penalties.
What happens when you cancel your car insurance policy?
Once you cancel your auto policy, you might have a cancellation fee or receive a prorated refund from your provider, depending on when you cancel and your insurance company’s rules. If you don’t already have a new plan secured, you may face a lapse in coverage, which can lead to higher rates.
If I cancel my auto insurance, will I get a refund?
Yes, you may collect a refund from your car insurance company if you cancel your coverage. Most insurers offer a prorated refund, which gives you money back on the remaining portion of your policy that you won’t use.
