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Auto Insurance Cancellation: How to Cancel Your Policy

Updated: September 10, 2018

Most car owners are fully aware of the process involved in getting auto insurance, but auto insurance cancellation is a bit of a mystery.

Everyone knows that they can cancel something by letting the contract expire, but this is not how it works with auto insurance.

There are specific ways to properly cancel auto insurance that must be followed, unless the driver wants to make serious mistake.

By following these steps, drivers stay on the right side of the law and do not leave themselves open to huge expenses.

Following the auto insurance cancellation procedure also makes it easier to get a new policy in the future.

Reasons for Auto Insurance Cancellation

The first question a car insurance policyholder must ask themselves is why would they want to cancel their auto insurance policy. Auto insurance cancellation is done for a variety of reasons.

People might consider changing their auto insurance policy if they are not happy with the terms.

A major reason for cancelling an auto insurance policy is that you are planning on selling the associated vehicle and not buying a new one. There is no reason to pay for auto insurance if you are not going to take your vehicle on the road anymore.

People might consider changing their auto insurance policy if they are not happy with the terms. Perhaps you had a bad claims experience or found an offer for a cheaper and more thorough policy.

Another reason to consider auto insurance cancellation is when moving across the country. Each state has their own laws about auto insurance, which means your existing policy may no longer remain valid. Instead of keeping the same company, you can find cheaper, better policies in that state.

Getting divorced is another event that can prompt cancelling a policy, because many couples have policies that they both use to drive their vehicle(s).

How to Cancel Auto Insurance?

The best thing a policyholder can do is to get an auto insurance cancellation form. These forms are provided by all major insurance companies, and they make the process a lot simpler. They will have details in the forms about all the steps that you must take in order to cancel the specific policy.

If an insurance company hears that a customer wants to leave, their first step is to offer a number of discounts.

If you are currently unhappy with an auto insurance policy and are thinking about cancelling, call the relevant insurance company and let them know. Not only is this the best way to start the process, but it also tells them that you are not pleased with their current offering.

If an insurance company hears that a customer wants to leave, their first step is to offer a number of discounts. They will bring the price down on renewing the policy, or offer more coverage for the same premiums. Some companies offer lower deductibles on the same premium, or lower premiums on the same deductible.

This gives you a lot of options. You can either pursue the cancellation and go with a new company, or renew the existing policy at much better rates.

How to Cancel Auto Insurance Policy?

For those who are determined to cancel, they can get the policy cancellation form, fill it out and follow the remaining steps listed on the form.

Do not forget to notify your car loan company if there is still time left on your car loan payments.

If there is still significant time left on the policy, request a refund for any premiums you already paid. This is commonly done among policyholders who pay their premiums six or twelve months at a time.

Do not forget to notify your car loan company if there is still time left on your car loan payments. They need to know that you are switching insurance companies so they can determine if your new policy meets their standards.

The final step is informing the state DMV. Some states require drivers to turn in their license plates and registration tags for new ones if they are switching auto insurance policies.

Under no circumstances should the insured individual simply stop paying their premiums. This can cause your policy to lapse and bring down your credit score. Do not stop paying premiums until you receive notice from the insurance company that the policy is cancelled.

Mistakes Made During Auto Insurance Cancellation

The biggest mistake people make during auto insurance cancellation is that they let their existing policy expire before they even think about getting a replacement.

If someone gets into an accident during the few weeks that they have no insurance coverage, and the accident was their fault, they are on the hook for the damages incurred to the other party.

This is a huge error, because it almost always leads to a period of time where people are driving their vehicle on roads and highways without any auto insurance. Not only is this illegal in almost all states, but it is also very dangerous if the person were to get into a car accident.

If someone gets into an accident during the few weeks that they have no insurance coverage, and the accident was their fault, they are on the hook for the damages incurred to the other party.

This means potentially paying thousands of dollars from your own pocket because you were negligent during the auto insurance cancellation process. In addition, any insurance policy you get in the future will be more expensive.

There are also fines and penalties in most states for driving without insurance. People can get hundreds of dollars in fines if they are caught without insurance, while some states even enact 30 to 90-day license suspensions.

How to Get a Better Auto Insurance Policy?

One of the biggest reasons for cancelling a policy is to get a better one. In fact, statistics show that a majority of policyholders would benefit financially if they “shopped around” for policies every year. If a policyholder wants to cancel their current policy, they should find one that is cheaper and offers more coverage.

Trading your car in for a less expensive vehicle is another way to save money on auto insurance.

The last thing anyone wants to do is cancel their current policy without any hope of getting a better deal elsewhere.

The best way to achieve this goal is by getting quotes from all the reputable insurance companies in your area. If you have a clean driving record without any negligent accidents, the offers you get will include fairly low premiums.

Trading your car in for a less expensive vehicle is another way to save money on auto insurance. Companies offer lower premiums for cheaper cars because they cost less money to fix.

Trading in a sports or luxury vehicle for a common road car will result in huge savings, because sports cars are always the most expensive to insure.