If I Change Car Insurance Companies Before My Policy Ends, Do I Still Have to Pay the Old Company?

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You don't have to wait until the renewal date to cancel your auto insurance policy.
You don't have to wait until the renewal date to cancel your auto insurance policy. (Image: Photos.com/Photos.com/Getty Images)

You may choose to leave your present auto insurance carrier for any number of reasons, such as poor service, a "personality clash" with your agent, increasing premiums or another reason. While changing insurance companies on your renewal date is usually a good practice, there is nothing to prevent you from leaving before the end of the policy period. However, doing so may not always be the most cost-effective strategy.

Notification

If you intend to cancel your auto policy before the end of the policy term, you will need to properly notify your carrier of your intention. Your policy should spell out the process for cancellation, which typically involves sending written notice. Be sure that your requested date of cancellation is the same as the start of your new policy to avoid gaps, assuming you've found coverage with another carrier. It's also a good idea to call your agent so she can facilitate the cancellation process.

Prorated Premium

Fortunately, if you decide to cancel before the end of the term, you do not have to pay the balance of the premium. The company will prorate your cancellation, meaning it will return any unused premiums you've already made. For instance, if you've paid a six-month premium in full and you decide to cancel your policy after four months, your carrier owes you the balance for the remaining two months.

Considerations

Although the company must repay any unused premium, it doesn't guarantee that you will receive the full amount. Insurance companies can elect to charge a "short rate," which is essentially a fee imposed for leaving early. Companies generally use a short rate table to determine the amount of the fee. The earlier in the term you to decide to leave, the higher the fee will be. You should find out from the company the amount of the fee to determine whether canceling early is worth the additional cost.

Waiting Until Renewal

Unless you are canceling your coverage because you are getting rid of your vehicle and no longer have the need to insure it, the best practice normally is to change carriers on your renewal date. You'll avoid any short rate fees, and you won't have to worry about waiting for the carrier to return your unused premium. A good practice is to apply for your new coverage three to four weeks prior to the renewal date of your current policy to ensure everything is in place.

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