Today, we’re answering all your questions about whether or not refunds are available when you cancel or switch auto insurance policies.
You Should Be Able to Get a Refund If You Paid for your Policy in Advance
Switching auto insurance is surprisingly easy. In fact, there’s nothing preventing you from switching car insurance mid-policy – at least in most cases.
Most car insurance companies in the United States will also give you a refund if you prepaid for your policy. It’s unlikely that you’ll get a 100% refund on the unused portion of your policy, but you should still get a significant amount returned to you – including the remaining months of coverage you paid for but will not use.
Check your Policy for Cancellation Fees and Other Terms
Not all insurance companies make it easy to cancel, switch, and get a refund. Some car insurance companies will charge high cancellation fees. Other car insurance companies will refuse to give you a refund. Some companies will deduct a portion of your remaining policy or prepaid amount as an “administration fee”.
Cancellation fees are particularly common on month-to-month car insurance policies. When you’re on a month-to-month policy, it’s easy for you to switch car insurance providers mid-policy. Insurers know this, which is why they discourage switching by adding cancellation fees. You are more likely to encounter cancellation fees on a month-to-month policy than on a 6 month or 12 month prepaid policy.
Generally speaking, you can expect to lose a little bit of money when canceling your car insurance policy, although most of the amount you prepaid should be returned to you.
Your Refund Depends on your Policy Term
If you’re on a 6 month or 12 month car insurance policy and you’ve prepaid that policy upfront, then you should be entitled to a refund whenever you cancel that policy.
If you prepaid for 6 months of car insurance and you decide to cancel that insurance in month 3, for example, then you should get a refund for the last three months of your policy.
On the other hand, you’re unlikely to receive a refund if you’re paying for car insurance month-to-month or bi-monthly. In this situation, the car insurance company might not refund any money to you, even if you still technically have a few days or weeks remaining on your policy when you cancel it.
You May Owe Your Car Insurance Company Money If You Cancel
Some people are surprised to learn that they actually owe their car insurance company money when they cancel.
If you cancel your car insurance policy before making a payment for your next month, for example, then your car insurance company might demand payment. Even if you’ve already paid for your next month, you might owe the car insurance company money due to hefty cancellation fees.
Talk to your Insurance Agent
Your best option is to contact your car insurance company and ask them if you’re entitled to a refund. In most cases, your refund will be processed without issue, and you can cancel your policy and switch to a new provider.
Typically, your car insurance company will refund your payment using the payment method you provided. If you paid for your policy with a written check, for example, then the insurance company will refund payment via a check.
It’s virtually unheard of for a car insurance company to issue a refund in cash.
If You Disagree with your Refund, You Have Options Available
Insurance companies that operate in bad faith may push back against car insurance refunds. They might deny any type of refund, for example, even if you paid for your policy upfront.
Unfortunately for these insurance companies, customers have options when they disagree with a refund.
Different states have different laws regarding the options available to car insurance customers when seeking a refund. Many states, however, have mechanisms in place that allow customers to appeal a refund from their insurance company.
Drivers in Massachusetts, for example, can appeal a cancellation refund to the Massachusetts Division of Insurance Board of Appeals. Many states have similar departments.
Avoid a Lapse in Coverage
If you’re canceling your old car insurance policy and switching to a new provider, then make sure you avoid a lapse in coverage. Make sure your new car insurance policy starts the same day your old car insurance policy expires. If you leave a gap between policies, and you drive during that gap, then you could face severe consequences – including fines, jail time, and being forced to pay for accident expenses out of pocket.
Generally, your car insurance company will give you a refund if you cancel your policy or switch providers. Refunds are almost always available on prepaid 6 month or 12 month insurance policies, but you might not get a refund on month-to-month policies.