If You Cancel Car Insurance Early Do They Have to Refund Money?

Save

Whether or not you receive a refund for a canceled car insurance policy depends upon how long the policy was in effect and how much of the premium was paid. Insurance companies are only entitled to the amount of premium for which they provided coverage. The amount of your car insurance refund depends on the reasons for cancellation and when it was canceled.

Earned Automobile Premium

In insurance terms, earned premium is the amount of money you paid for the actual coverage you received. In other words, if you purchased a policy that goes into effect on Jan. 1 and you paid the full annual premium when you bought the policy, the insurance company has yet to earn the full year’s premium. If on Feb. 1, you decide to cancel the policy, the insurance company must refund 11 months' worth of premium that it had not yet earned.

Pro Rata Versus Short Rate Cancellation

A pro rata cancellation is the type of cancellation described above. This means the insurance company will fairly return the amount of premium that it did not earn. Some insurance companies charge a short rate cancellation penalty when the insured cancels a policy midterm. The short rate penalty is approximately 10 percent of the unused premium.

Not all insurance companies charge a short rate cancellation penalty. In order to do so, however, the insurance company must file the necessary paperwork with the department of insurance for its state giving it permission for such short rate penalties.

Insurance Cancellation Window

When your current insurance company provides you with a renewal quote and you’re not happy with the terms, conditions or premiums, you have a window of opportunity to switch auto insurance companies without suffering the short rate cancellation penalty. Although the number of days in the window of opportunity varies by state, if you cancel the policy within the window of time allotted by your state, you will not suffer a penalty.

As insurance is regulated on a state level, you will have to check with your state’s department of insurance to find out the number of days in your window of opportunity.

Nonpayment of Premium

If you end up with a canceled policy because of nonpayment of premium, some insurance companies charge a short rate cancellation penalty.

If you cancel your auto insurance policy and you have paid more in premium than the insurance company fully earned, you will receive a premium refund. The amount of the refund depends on the insurance company and whether or not the short rate cancellation factor is applied.

Related Searches

References

Promoted By Zergnet

Comments

You May Also Like

Related Searches

Check It Out

4 Credit Myths That Are Absolutely False

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!