Have you ever found yourself needing to cancel a car or home insurance policy but didn't know where to start? Perhaps you've discovered a better rate elsewhere after shopping around, or your needs have changed, necessitating a different type of insurance. It's also possible that your financial situation has evolved, making insurance less affordable or necessary. And if this is your first insurance policy, the process of cancellation might be entirely new to you. What should you consider when cancelling your insurance policy? We're here to guide you through all the scenarios. Here is the definitive guide to cancelling your insurance policy.
Key Takeaways:
Both methods ultimately serve the same purpose: the cancellation of your insurance policy. Once you have submitted your chosen form of cancellation to your broker, keep in mind that the processing times can vary. Your insurance company may require several days, or in some cases, even weeks, to formally process the cancellation. During this interim period, it's possible that an additional payment might be withdrawn from your account, depending on where you are in your billing cycle at the time of cancellation. We will explore more about the implications of payments and refunds in the cancellation process later in the blog.
If you're looking to cancel your car insurance without incurring any charges, the key is timing. The best way is to plan the cancellation on your policy’s renewal date. This type of cancellation is referred to as a Flat Cancellation. By ensuring the policy runs its full term and aligning the cancellation date with the renewal, you can avoid any fees. For example, if your policy expires on December 31st, canceling on this date means you’ve fulfilled the full contract term, and no additional charges will be applied. To ensure a smooth process, notify your broker or insurer a few weeks before the renewal date and request confirmation that your policy will not renew.
Another option to avoid charges is if the insurer initiates the cancellation or approves a Pro-Rata cancellation due to special circumstances, such as an error or an unavoidable change in your insurance needs. However, these scenarios are less common. Planning your cancellation strategically at renewal remains the best way to avoid charges entirely.
The short answer is that you can cancel your car insurance policy anytime you wish. There are several instances where cancelling might be the right choice. For example, it's a good time to cancel if you no longer need the insurance, such as after selling your car or home. Other reasons might include moving to another country or province, combining your policy with that of a partner or spouse, or facing affordability issues. Additionally, if your policy renewal is due and you've found a better rate elsewhere, that's also a prime time to consider cancellation. Keep in mind that while most insurance policies have 12-month terms, some may have 6-month terms. Ideally, it's best to cancel at your policy’s renewal date to avoid penalties as also mentioned above, but you do have the option to cancel mid-term, though it may incur some penalties.
In the digital age, cancelling an insurance policy online has become a convenient option for many policyholders. If you wish to cancel your car or home insurance policy online, the process typically involves logging into your account on the insurance provider's website. Once logged in, look for the policy management or cancellation section. Here, you may find an option to request policy cancellation. Fill out any required online forms, clearly stating your intention to cancel and the desired effective date of cancellation. Some insurers might require you to upload a signed document or send a cancellation request via email. After submitting your online cancellation request, it's crucial to wait for a confirmation email or message from your insurer, ensuring that your request has been processed and acknowledged. This confirmation is essential as it serves as proof of your action to cancel the policy. Keep in mind that the online cancellation process can differ slightly between insurers, so it's advisable to check your provider's website for specific instructions or contact their customer service for guidance.
We are glad you asked! Yes, there can be charges for cancelling your insurance policy; it all depends on when you cancel. Cancelling mid-term may lead to a Short Rate cancellation, though not always. Cancelling on your renewal date incurs no charges, which we call a Flat Cancellation. There are also circumstances where a Pro-Rata cancellation is necessary. We’ll explain the three possible outcomes here:
The vast majority of insurance policies are on a 12-month period. Just like most annual contracts, if you cancel early, there will be a cancellation charge. The Short Rate charge is applied due to administrative costs involved for both the insurance company and the broker to process cancellations, which would not incur had the policy gone to full term. The Short Rate charge can vary depending on when during the term you cancel the policy. The earlier in the term you cancel, the higher the charge will be. There is a specific calculation formula called a Short Rate Cancellation Table. Suffice it to say that your Short Rate cancellation charge will be somewhere between 3 to 4 weeks of premium on top of what you regularly owe to the insurer. For example, if your annual premium for your car insurance policy is $2400, you can expect to pay around $150 to $200, or three to four weeks’ worth of premium, as a cancellation charge.
A Flat Cancellation is a straightforward cancellation with no charges. This occurs when you cancel your insurance policy effective on your renewal date. Since the policy went its full 12-month term and you have fulfilled your commitment, you may cancel without any charges. It is always best to line up this cancellation, and hopefully your move to another company, a few weeks ahead of time so you can allow time for processing and your payments can all stay aligned well.
A Pro-Rata cancellation is rare and usually occurs when you need to cancel your policy mid-term, without charges. All of the unearned portion of your annual premium is returned to you. This usually happens if the insurance company has made an error, if for some reason a new policy is necessary, or it can be done at the insurer's discretion if necessary.
This is the million-dollar question and perhaps the most common question we receive in an insurance brokerage. The answer is... it depends on many factors. Are you cancelling on renewal or mid-term (see above)? Are you cancelling three weeks from now or effective today? When was your last payment? When is your next scheduled payment? How long does your insurer take to process cancellations? Does it take them 2 hours or 2 weeks to process a cancellation? Is another payment scheduled for the next week that cannot be stopped? Did you make a down payment at the start of the policy? All of these factors go into determining whether you will get a refund, and it can be very complicated.
The short answer is that you will not always get a refund. The long answer is that it really depends on how much you have paid, how much is earned by the insurance company, minus any cancellation charge if cancelled short-rate. It’s best to coordinate this with your insurance broker so there are no surprises. At the end of it all, you will receive an account statement from the insurance company explaining what has been paid versus what has been earned.
We can’t emphasize enough how important it is to understand cancellation charges, down payments, earned premiums, and when your next withdrawal is. This will avoid confusion and false expectations when cancelling your policy and set you up better to start your new insurance policy smoothly.
The short answer is no, cancelling your policy should not affect your future insurance premiums going forward. A consumer should not be penalized for not having insurance due to valid reasons like not owning a car or not owning a home. However, some insurance companies offer discounts for 10 or even 20 years of continuous insurance.
If you have a lapse (gap) of insurance during a certain period you may not qualify for the best rates. So does a gap in coverage really affect your rates? Well, you won’t be penalized but you also won’t get the best rates. Sounds like semantics to us but we’re here to tell you the truth. The truth is that you want to avoid lapses or gaps in insurance wherever possible in order to maintain your claims free status. This may not be practicable if you have no need for insurance, however you also should avoid frivolous gaps in insurance where possible.
Cancellations for non-payment are one of the top ways you can make your insurance more expensive over time. There are a number of reasons why:
Business Insurance policies, commonly known as Commercial Insurance policies, have other factors involved when cancelling which may not seem obvious.
Many Commercial Insurance policies, including some niche personal lines property policies, include something called a Minimum Retained Premium. This is the premium kept by the insurance company no matter when you cancel. This is meant to cover administrative costs and to discourage an early cancellation after obtaining a policy number. The Minimum Retained is usually a flat fee such as $350 annually in addition to any Short Rate Cancellation penalty as discussed above. A broker should disclose this to the client upfront when selling the policy to avoid any surprises.
If you’re a professional such as a Lawyer, Accountant, Broker, Consultant, etc., you will likely need Professional Liability Insurance, otherwise known as Errors & Omissions Insurance. After you retire, or close your business, you will want to cancel your E&O Insurance policy. What happens though if you get sued months, or even years later? Your policy is cancelled and no longer covers you. Consider purchasing a “Tail” Insurance policy which essentially extends this policy longer. While you may not be creating new risks due to retirement, you’ll still be covered for old ones, at a lower price. This is a must-have after you cancel your Professional Liability policy for your peace of mind during retirement.
Motorcycle Insurance and some other seasonally-based insurances, such as ATVs, boats, etc., have different considerations when cancelling. Let's imagine you're paying $1,000 annually for your motorcycle policy. The Spring, Summer, and early Fall come and go. You've enjoyed using your bike during the warmer months and now feel it’s time to cancel your insurance for the Fall and Winter, perhaps expecting a refund of half of the $1,000 you paid. Not so fast, though—throttle down a bit! The premiums are fully earned during the Spring and Summer seasons, meaning that if you cancel afterwards, there will be no refund. You might ask, 'That’s not fair, why am I being charged during the Winter months?' The reality is you aren’t being charged during the Winter or Fall months. The premium is calculated based on usage for roughly half the year. So why not just issue 6-month policies for the summertime? The answer is simple: it’s better to have continuous 12-month terms to avoid the need to remember to start your bike policies up every year. It simply makes administration easier. Veteran bikers know the drill—don't even try cancelling your motorcycle policy early unless you sell your bike.
Knowledge is power, and knowing when to cancel your Insurance Policy and the procedure to do so is fundamental in your insurance journey. Protecting your assets while keeping your premiums as low as possible is easy to do when you know the basics, including when and when not to cancel your policies. Begin your insurance journey with us today and let us help you navigate all of your insurance needs in a professional way.
To wrap up our guide, we've got a quick snapshot at the end that puts everything into a simple, step-by-step format. It's all you'll need for the essentials on how to cancel your policy, by—wait for it—Begin Insurance!
And once you've got the hang of insurance cancellation, don't stop there—our blog page is packed with more insights and tips. Dive into our other posts for all things insurance; you might just find the next bit of advice you need.
Posted May 10, 2019