In the wake of the coronavirus (COVID-19) pandemic, people have been forced to shelter-in-place, state governments have issued lockdowns, and businesses have had to close their doors, leaving millions in difficult financial times. Since people aren’t traveling or in their cars as much, the temptation to cancel car insurance is growing stronger as everyone looks for ways to save money. Believe it or not, cancelling car insurance coverage is actually a huge decision with repercussions that can follow you into the future.

Unless you happened to recently buy a new car and want a new policy to go with it, or are looking to switch your car insurance to a better policy, there are a lot of aspects to consider before moving forward with insurance coverage cancellation.

Before getting into exactly how to cancel auto insurance policies, this guide will help weigh the pros and cons first, and also offer alternatives that may be a better fit for you.

Consider the Pros and Cons Before You Cancel Car Insurance

Many car insurance companies have responded sympathetically to those experiencing financial hardship due to the COVID-19 outbreak—offering longer grace periods on payments before terminating policies, waiving late fees, and even providing policy credits towards future payments. While this is a positive response considering businesses themselves are struggling to make ends meet right now, extensions alone may not be enough to ease the financial burden of your auto insurance bill.

Considering the advantages and disadvantages of canceling your car insurance during this time will help you make an informed decision with the greatest financial benefit in mind.

The Pros of Canceling Car Insurance

The term “pros” is a little misleading, because there’s really only one benefit to canceling your car insurance: having more money. Car insurance can be expensive, and in uncertain times, spending a lot of money just to drive yourself to the grocery store and back is enough to make you think twice about having coverage at all.

While cost varies from state to state, premiums nationwide average between $1,100 and $3,343 per year, according to Business Insider. Besides the state you live in, there are other factors that can drive up the price, such as:

  • Being under 20 years of age

  • Being male

  • Being married

  • A previous accident or DUI

  • Poor credit scores

  • Living in an urban area

  • Having a more expensive car

Despite the fact the average American pays only $130 per month for car insurance, getting to keep that money in your pocket in the midst of a global pandemic and financial hardship is enough to make a difference. In the short term, you’ll be saving a lot of money by canceling your policy, but forgoing car insurance altogether can create much bigger, long-term financial problems for you.

The Cons of Canceling Car Insurance

While there are certainly more cons than pros, they may have less of an impact on you depending on where you live and whether or not you’re planning on using your car at all during this time.

However, having gaps in coverage is a grave issue that affects everyone, no matter who you are, where you live, or what you do. Unlike the advantage of canceling your car insurance policy right now, the disadvantages will affect you both in the present and the future.

Uninsured Accidents

Accidents can happen anywhere, any time. Even if you’re rarely driving your car right now, the stress of this pandemic only increases your risk of inattentive driving. There are financial liability laws in every state in the country saying that you have to be able to show you can pay the cost of a car accident.

Having car insurance satisfies these laws, but without it you’ll be forced to pay for property damage and medical expenses out-of-pocket and could face legal ramifications.

Breaking the Law

Most states require car insurance for all registered vehicles. There are two states that don’t require drivers to be insured by law: New Hampshire and Virginia. Whether you’re pulled over randomly or involved in an accident, if you’re caught driving without insurance in any of the remaining 48 states, you could find yourself with:

  • Fines of up to thousands of dollars

  • License suspension

  • Jail time (though, this is usually for repeat offenses)

Addiotionally, car insurance and vehicle registration go hand in hand—cancel car insurance, and you’ll need to cancel car registration.

If you try to cancel your auto insurance policy without cancelling your registration, your registration may be suspended, and driving with a suspended registration is a misdemeanor offense. Driving unregistered and uninsured vehicles adds points to your driver’s license in the same way that speeding tickets and accidents do.

It May Cost More to Get Re-Insured

Having a gap in coverage will most likely make your policy more expensive when you try to get car insurance again later. Business Insider reports that cancelling your insurance now could result in you paying up to 12% more later, just to get the same coverage you started with.

If you’re planning on getting car insurance again in the future, you could potentially spend more money in the long run than you would’ve saved by canceling during this time.

You’ll Pay for Damages Out-of-Pocket

Canceling your entire insurance policy may seem like a good idea if you’re not driving, but insurance also covers damage caused by natural disasters.

Even if your car is parked in front of your house, if flash floods, tornadoes, or storm damage wreaks havoc on your car, you’re responsible to pay for repairing or replacing it.

Typically, weather-related damage would be covered under comprehensive coverage. By canceling your comprehensive coverage, or your whole insurance policy, you won’t have any financial assistance in the expensive process of fixing your vehicle. Before deciding to cancel, see our guide on how to lower car insurance rates.

Steps to Cancel Car Insurance

After considering all factors, if you still feel that cancelling your car insurance is the best move for you during the COVID-19 pandemic, you will need to cancel both your registration and your insurance, in that order.

The steps to doing so are outlined below.

Cancelling Insurance to Save Money During COVID-19

If you’ve decided to commit to not driving for a while and aren’t concerned about the increased rates for coverage in the future, canceling your insurance is a viable option. The steps to cancel must be done in a specific order, however, to avoid any legal trouble like fines or license and registration suspensions. Be sure to complete the steps as follows:

  1. Cancel your registration and surrender your license plates to your local DMV either online, through the mail, or in-person

  2. Contact your insurance provider about canceling your insurance policy

  3. Park your motor vehicle in the safest place you can (ideally in a garage) to avoid any damages while uninsured

Cancelling Insurance for a New Car or Better Policy

When switching car insurance policies, either because you got a new car with different coverage needs or simply because you want different coverage, you should use a rate comparison tool to look at premiums from multiple carriers, making sure you get the best price for the coverage you need.

If you’re switching policies on the same car, and it isn’t time-sensitive, take the time to check for potential penalties from your current carrier. Most insurance companies will provide you with a refund of your unused premium if you choose to cancel in the middle of your policy term, but many also charge you a cancellation fee for not waiting until the policy expires.

Once you find a policy and know when you’d like it to begin, you can start the following cancellation request process:

  1. Contact your current insurance provider to move forward with your policy cancellation

  2. Make sure you won’t have a gap in coverage to avoid fines or a suspended driver’s license

  3. Cancel any auto-renewal or auto-payment features you had set up on your account, which may make the transition more difficult and affect your credit score

  4. Confirm your termination in writing and send it to your agent, that way if you continue to get billed for the canceled policy you can dispute the charges and defend your credit report

  5. Sign up for your new policy, double checking that you have avoided a lapse in coverage on current vehicles and are abiding by your state’s new car and insurance grace policy period

Alternatives to Canceling Car Insurance

If you decide you don’t need or want to cancel your auto insurance coverage, you have other options to save money while following the law and protecting yourself. Here are some of the alternatives that will help you save money without fully canceling your car insurance:

  • Drop optional coverage – If you have an older car and aren't driving much, you may want to drop collision and comprehensive insurance. The maximum payout, which happens if you total your car, is the value of your car in its current condition. If your car isn’t worth much more than your deductible, it may be better to save your money. On average, collision insurance costs $342 and comprehensive insurance costs $153 per year, according to Forbes, so you would save $495.

  • Switch to pay-per-mile insurance – For people who aren’t commuting right now, a pay-per-mile insurance policy is a great way to save money. You pay a base rate plus a per-mile rate, which is tracked using a device that plugs into your car. Once your usual driving schedule resumes, you may end up paying more with this policy, but it’s a good temporary solution.

  • Shop around for better rates and discounts – Drivers should be looking at new car insurance options every year, since switching providers saves people an average of $560, according to NerdWallet. While it may seem easiest to stick with your current insurer and policy, let the amount of money you could save motivate you to start browsing.

One note is that if you want to suspend car insurance temporarily or need temporary car insurance, these are different matters altogether, and must be talked about with an insurance agent.

Maximizing Savings with Online Auto Insurance

Cancelling your car insurance is always tempting when money is tight, especially now when states are on lockdown, businesses are closed, and we’re advised to stay in our homes. But it’s good to remind ourselves that this isn’t going to last forever, and making choices that only offer short term benefits should be the last option. Cutting down on unnecessary costs is a great way to avoid canceling car insurance altogether while still saving money.

Comparing insurance quotes across hundreds of providers is fast and free with Online Auto Insurance. You can even talk with an agent live over the phone while you browse your results online, making sure you stay physically safe and financially secure during this uncertain time.

And for any questions regarding auto insurance, be sure to check out our catalog of car insurance blogs for more information. Everything from do you need insurance on a car that doesn’t run to buying a new car and insurance grace period are answered by the experts at Online Auto Insurance.

Sources:

Business Insider. The average cost of car insurance in the US, from coast to coast. https://www.businessinsider.com/personal-finance/average-cost-of-car-insurance

Business Insider. You can cancel your car insurance if you aren’t driving during the pandemic, but the smarter move is to cancel only part of it. https://www.businessinsider.com/personal-finance/should-i-cancel-car-insurance-coronavirus-2020-4

Forbes. How To Reduce Car Insurance Costs During The COVID-19 Pandemic. https://www.forbes.com/sites/advisor/2020/04/16/how-to-reduce-car-insurance-costs-during-the-covid-19-pandemic/#776059945874

NerdWallet. How Often Should You Shop Around for Car Insurance? https://www.nerdwallet.com/blog/insurance/how-often-to-shop-for-car-insurance/