Are auto insurance policies a contract, what happens if I cancel?

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Are auto insurance policies a contract, what happens if I cancel?

Each auto insurance company has its own guidelines on cancellations. If a policy is for a certain term, such as six months or twelve months, cancelling a policy may or may not result in cancellation fees.

Cancellation fees, if applicable, aren’t necessarily always going to be expensive. Some cancellation fees range from $0-50 and are billed after the policy cancels. It is often believed that similar to a cell phone contract, you will be charged for the remaining months on your term. That is never the case because insurance companies cannot charge for unearned premium.

Earned premium is the time the insurance company is at “risk” for a loss under your policy; in other words, when your policy is active and ready to provide coverage. If one cancels a policy, however, companies are legally able to collect unpaid policy fees, cancellation fees and earned premium.

For example, if John Doe is paying $50.00 per month with a twelve month policy term and cancels midterm, his insurance company is charging $12 for earned premium, $25 policy fee and a $20 cancellation fee for a total of $57.00. These figures are estimated and vary within carriers.

This is one of many situations. Remember that not all companies charge cancellation fees and sometimes you pay the policy fee up front so you won’t owe it if you cancel your policy. In some cases, you may even get money back after cancellation for unearned premium (money paid for days not covered).

The bottom line is that each auto insurance company has its own guidelines and regulations. The best thing to do is to contact the customer service department and ask if there is a cancellation fee and ask for an estimated balance, if any, if you were to cancel your policy.

Cancelling a policy midterm is not always a bad idea. Some customers may end up paying a one time fee for cancellation but switch to an insurer with lower rates saving money month after month and making up for the money paid for cancellations.

Having a current policy shouldn’t stop one from searching for lower rates even if the policy is midterm. OnlineAutoInsurance.com lets consumers easily compare car insurance online from a variety of carriers with one simple process and with no obligations.

Learn more about the personal automobile policy by reading OnlineAutoInsurance.com's free auto insurance policy articles or you may visit our learning center for more information.

Are auto insurance policies a contract, what happens if I cancel?

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