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Things to remember...

Getting car insurance can be an involved process. Not only do you have to gather all of your licensing and vehicle information, but you also have to solicit quotes to find the best rates in town.

Once you’ve compared quotes, you’ll have to select the best combination of coverage limits and the best policy.

Then, after you’ve made your final selection, you’ll have to start the application process which can last anywhere from 30 to 60 days.

You’ll have coverage from the moment you apply even though it takes a while to finalize an insurance rate and issue a policy.

Be sure to submit your first payment with your application and ask for a binder so that you’re not going without coverage.

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If you decide you want to cancel your policy shortly after you apply, here’s what you should know:

Are you legally allowed to cancel an auto contract you’ve applied to enter into?

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Auto insurance is a contract that’s legally binding. If you read through your policy booklet to understand the terms and conditions of the contract, you would find a lot of legalese that’s difficult for the average consumer to understand.

Even so, both parties that enter into the contract must satisfy their duties when an application is submitted.

Some of the rules laid out in a policy are dictated by the consumer rights that are set forth by the state.

One of your consumer rights when you buy auto insurance is that you’ll be able to cancel your policy at your request.

It doesn’t matter if you are approaching your renewal or if you have almost an entire year left on the term, you  have the right to request a cancellation.

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What are some legitimate reasons to cancel your policy early?

It seems like a lot of work to apply for a policy that you’re only going to have for 14 days.

It’s not ideal to cancel your insurance this early, but sometimes there are factors beyond your control and other times failing to do your research costs you money.

Here are a few valid reasons you should cancel early:

  • You sell your vehicle and don’t plan to buy a replacement
  • You give your vehicle away and decide to surrender your driver’s license
  • Your vehicle is totaled in a loss, and you decide not to purchase a new one
  • You move out of state suddenly
  • Your final rate is higher than expected and you buy insurance elsewhere

Is there going to be a fee for canceling insurance within 14 days?

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There may be a fee for canceling your insurance early on in the policy. Some carriers charge these fees to protect themselves from incurring costs to underwriting an application.

Since insurers spend money on manpower and on reports, they need to be sure that the money spent isn’t in vain.

If you are charged a fee, there will be a provision in the policy saying the company processes short-rate cancellations. The fee that’s charged will either be a percentage of the premiums that are still left unpaid or a fixed amount that’s spelled out in the policy.

If you’re canceling your insurance because you found a better rate elsewhere, take a look at the fee you’ll have to pay first. It’s probably not worth the switch to save $50 each term if you’re being charged 10 percent of your $1,000 balance.

If the fee is only $10 and you’re saving $50, then the effort is well spent. Assessing the cost and savings is important.

How do you submit your cancellation request?

Submitting your cancellation request isn’t difficult if you request the current date or a date in the future. All you’ll have to do is write up a letter saying that you want to terminate the policy effective a certain date.

Be sure to include the following:

  • Your name
  • The date
  • The policy number
  • Your contact information
  • Your signature

Turn the request in at least five days before any automatic payments are coming out of your account.

Why You Shouldn’t Buy Short-term Insurance

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You could apply for a short-term policy that lasts one to 30 days, but it’s not in your best interest. These policies have extremely high premiums because they aren’t underwritten.

They are designed for people trying to get their license back because they don’t qualify for standard coverage.

Look for an insurance policy that you’ll want to keep for the entire term. If something comes up or you’re not happy with the carrier, you can cancel your policy. Start getting quotes through carriers online, and see which carrier has the best rates for you.

Use our quick and easy comparison tool today to get started.

Things to Remember...
  • A standard Personal Auto Policy is sold in either a 6-month or a 12-month term
  • Auto insurance policyholders are free to cancel their auto insurance policies at any time and for any reason
  • If you pay your premiums in advance and cancel your policy mid-term, you’re eligible to receive a refund for the unearned premiums
  • It’s common for auto insurance companies to subtract a short-rate fee from your refund for the administrative costs associated with a client canceling their policy early
  • Some states don’t allow insurance companies to charge an early cancellation fee. In this states, you’ll receive a pro-rated refund for all of your unearned premiums

You can never really predict how long you’ll need insurance on a vehicle. You may buy insurance with the intentions of keeping your policy for the entire year just to find out that you’re moving out-of-state months later. Since it’s your choice to enter into a contract with an auto insurance carrier, it’s your choice to decide when to end that contract.

All licensed insurance companies must give you the option to end your contract at any time, but that doesn’t mean that early terminations don’t come at a cost. If you cancel your policy before the term expires, there’s a good chance you’ll be charged a cancellation fee.

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Your Right to Cancel Your Policy

AdobeStock_58145823-1600x1600An auto insurance policy is a binding contract between you and an insurance carrier. Under the terms of the contract, you agree to pay your premiums and fulfill certain obligations so that the insurance company will provide you with the coverage that’s listed on your declarations page. If you don’t pay, you don’t have coverage.

The terms and conditions written into your contract lay out your duties as an insured. They also explain your rights as a policyholder. One of the rights that you have as a party in the contract is that you can cancel your policy at any time. The insurer isn’t given that same right because it could put a consumer in a dangerous place without protection.

When can your insurance company cancel your policy?

If an insurance company had permission to cancel your policy for any reason, it’d be common for carriers to cancel coverage immediately after a claim or a moving violation. Fortunately for you as a consumer, you have rights that protect you from losing coverage at any time during your term.

The only time a company can cancel a policy without notice is when the policy is still in the underwriting phase. The company has between thirty and sixty days to underwrite your application and to decide if they want to take on the risk. If they discover something on your record, they can change their mind during this time.

If you lied on the documents or you’ve been convicted of fraud, your policy will be rescinded.

Policyholders who are guilty of fraud or material misrepresentation aren’t protected from mid-term cancellations. Here are the reasons your policy can be canceled after the sixty-day cooling off period:

  • You don’t pay your insurance premiums on time
  • Material misrepresentation
  • Material change in risk assumed that increases the possibility of hazard
  • Substantial breach of duties written in the contract

What is an insurance term?

An insurance term is the period on your declarations page or insurance ID cards where your coverage is effective. As long as you pay your premiums and don’t change the risk present on the policy, your premiums will remain the same. When a policy cancels effective the expiration it’s called a flat cancellation.

Reasons a Policyholder Will Cancel Their Policy Early

You don’t always have control over the situations that present themselves in life. Some of these situations might eliminate the need for auto coverage.

There are more reasons why you might cancel your policy before your term is up for expiration. Here are some of the most common reasons:

  • You sell your vehicle and don’t plan on buying a new one
  • Your car is totaled, and you don’t plan on replacing it
  • Your car breaks down, and you don’t need a replacement
  • You lose your license or plan on surrendering it voluntarily
  • You transfer ownership to a family member and don’t need insurance in your name
  • You move out-of-state and need insurance from a new provider
  • You want to buy insurance from a new carrier to save money
  • You combine insurance with a new spouse

Do all insurance companies charge a fee?

Worried-couple_homepage_imageIt’s obviously in the insurance companies interest for you to keep your policy for the entire term. If you cancel your policy mid-term, the company can’t project how much they’ll make by the end of the year after premiums, claims expenses, and administration costs. For this reason, some states allow carriers to charge an early termination fee.

While cancellation fees are allowed in some states, not all companies charge them, which is why you need to ask your agent directly before you buy insurance if you plan on switching carriers early. As long as you’re equipped with the knowledge early on, you can plan ahead before you purchase a policy.

What is the difference between a short-rate cancellation and a pro-rate cancellation?

When you cancel your policy, you’re entitled to receive your unearned premiums after the cancellation is processed. The company will either process a short-rate cancellation or a pro-rate cancellation. The final refund will be mailed to your seven to fourteen days after the carrier receives your cancellation request.

A prorate cancellation is one where you receive all of the premiums you’ve paid in advance.

No fee is subtracted from the refund. A short-rate cancellation is one where a fee is deducted from your refund. This fee depends on your state and the carrier. Some short-rate fees are fixed, and others are a percentage of the unused premiums.

If you’re not happy with your current premiums, you can shop around and look for a more affordable policy. Check with your current carrier before you start shopping to see if you’ll be charged a fee.

If it still makes sense to switch carriers after the fee is charged, use an online rate comparison tool and see where you can save money.

Start comparing car insurance rates now by entering your zip code in our FREE tool below!

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