byAngele Doakes - Licensed Property & Casualty Broker
Updated March 31, 2021|4 min read
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Car insurance is financial protection if you get in an accident and damage someone else’s vehicle or cause them injury. It can also cover your vehicle if it is damaged by a car accident or by a different peril, like falling objects or hail.
In order to keep your policy in-force you need to pay your car insurance premium either monthly, bi-annually, or annually for the duration of your policy period. If you need to cancel your car insurance policy before your policy period ends, it won’t be too hard to do. Most insurers make it easy to cancel a policy online or over the phone.
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But what happens if you paid your premiums in full or bi-annually? Can you get some of that money back? Whether or not you qualify for a car insurance refund will depend on a variety of factors, like why you’re cancelling your policy and how you pay your premiums.
If you paid your premiums in full and cancel your car insurance policy before it is up, most insurance companies will refund you for the remaining months
You can also get a refund if you make changes to your policy, like if you sell a car or remove a driver from your policy
If you pay your premiums month to month you won’t get a refund unless you cancel your policy mid-month, in which case you’d get a partial refund for that month
If your insurance company cancels your policy due to non-payment they will not refund you and you will still have to pay the premiums that you owe them
The details depend on your insurance company, but you should be able to cancel your policy whenever you want. That said, you might have to pay a cancellation fee for canceling coverage before your policy term is up. And if you still need coverage, you shouldn’t cancel your insurance policy. If you are switching auto insurance companies, you should make sure your new policy starts the same day that your last policy ends so that you do not lapse in coverage.
How you pay your premiums will affect how much of a refund you can get from your company (if it offers them). A refund for policyholders who paid in full is more straightforward than for those who pay month to month.
If you paid your annual car insurance premiums in full, that means you paid them all upfront when you signed your policy. Many people choose this option, especially because most insurance companies will give you a discount for paying in full at the start of your six or 12-month policy term.
If you paid your premiums in full at the start of your policy, most insurance companies will give you a refund under the following circumstances:
Canceling your car insurance before your policy ends
If you move-out-of state and change your coverage amounts
If you remove vehicles or drivers from your policy
For example, if you voluntarily cancel your insurance policy mid-term, your insurance company may refund you for the remaining months that you already paid for, minus any fees for canceling early. And if you decide to remove an expensive driver from your policy, like a teen driver, your premiums will decrease and you will get a partial refund on the premium amount you initially paid.
If you pay your premiums month to month, things are a little more complicated. Since you didn’t pay in full, you won’t be refunded if you cancel your policy early, unless you cancel it mid-month. In that case, you’d only be refunded for the remaining half month.
That said, if you remove a driver or vehicle from your policy, moving forward the cost of your monthly premiums will be reduced. The same goes for if you qualify for new discounts — the reduced price will change in the upcoming months, but you won’t be refunded for the past ones since you were paying for coverage in real time.
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There are a few reasons your insurance company might cancel your policy:
Multiple car accidents
If you violate terms of the policy
Whether or not you will get a refund if your policy is canceled by your insurer really depends on company policy and why your policy was canceled. If your policy is canceled because of nonpayment, you won’t get a refund and you’ll have to pay your insurance company what you owe them, plus any cancelation or nonpayment fees.
However, if your policy is canceled for a different reason, like because you’re an unsafe driver, then many insurance companies will refund you for the months you already paid for. Even though your insurer is the one canceling your policy, if you paid in full, most major insurance companies will refund you a portion of your premiums.
Again, how companies pay refunds varies from company to company. Some insurance companies might mail you a check within a two week period, and others might transfer you a direct deposit within ten business days.
You should check your policy details or talk to your insurance agent about the company refund policy.
Major insurance companies offered partial refunds on car insurance premiums due to the COVID-19 pandemic. In response to the ongoing coronavirus outbreak, many insurance companies also paused non-payment policy cancellations and late fee charges. In April 2020, for example, Liberty Mutual gave drivers a 15% refund on two months of auto premiums and GEICO gave a 15% credit to policyholders as their policy came up for renewal.
If the coronavirus outbreak has affected your ability to pay your car insurance premiums, contact your insurer and ask about financial hardship options.
Canceling your car insurance will not hurt your credit score, but if you cancel it while you still have a car, you’ll end up with a lapse in coverage and insurance companies may charge you higher rates in the future.
The best time to cancel your car insurance is when you already have another policy in place. You can switch insurance companies anytime, but doing so when your policy is up for renewal means you won’t have to worry about a refund.
If you cancel your car insurance policy on your policy expiration or renewal date, you’ll be able to avoid short rate cancelation charges for canceling it prior to the end of the policy term.
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