Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like Reviews.com.

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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The lowdown...

  • If you cancel your auto insurance at any time during the term, you’re entitled to a refund
  • When you pay in full or you pay your premiums in advance, the insurer will give you back the unearned premiums
  • Unearned premium is the portion of the premium on the policy that hasn’t expired and has yet to be earned
  • Some carriers will charge a cancellation fee when you cancel your insurance. The fee is deducted from your refund
  • You’ll receive a prorated refund if there’s no short-rate fee charged by the company for early cancellation

If you’re in a rush when you’re buying auto insurance, you often settle for an insurance policy with high premiums just so that you can bind your coverage. Paying too much for your coverage is better than taking the risk and driving uninsured.

After you handle your business, you’ll have time to shop around for more affordable insurance quotes. Start here by using our free comparison tool.

As an insurance consumer, you have the right to cancel your policy for any reason. If you want to switch to a new carrier or you sell your car before your contract is up, your policy can be canceled at your request.

The question that many consumers have is what will happen to the money that you’ve paid if you end your contract early. Here’s what you know about auto insurance and premium refunds:

Can you cancel your insurance if you don’t want your policy any longer?

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Anytime you buy auto insurance, you’re making the choice to enter into a contract with an auto insurance company. Carrying auto insurance is a requirement in most states, but you’re never forced to buy your coverage through a specific carrier.

You have the right to decide where you want to buy insurance and that’s why you can cancel your coverage at any time during the contract. If you don’t need coverage or you don’t want to stay with your carrier, you can submit a cancellation request and the carrier must honor it.

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Can you ever ask for a cancellation to be backdated?

Most of the time, you must request that your policy is canceled on the day you submit your request or on a day in the future. If the insurer allowed you to select a date in the past, you would have received the coverage afforded for free.

It’s not a policy that would make sense for the insurer.

There are only a few instances where you can request that your policy cancellation is canceled on a date in the past. In most of these instances, you’ll have to present proof so that the insurer can backdate your request.

Here are some scenarios where your request to terminate your policy can be backdated:

  • You sell your vehicle and have the bill of sale to show the date the vehicle was released to the buyer
  • You buy insurance with another carrier and request the policy be canceled on the new policy’s effective date
  • You get into an accident and your vehicle is totaled. As long as the claim was settled with your insurer, you won’t need to submit proof

Canceling your insurance doesn’t automatically mean that your insurer will owe you a refund. Whether or not you’ll be refunded depends on when you make your payments, the date you request your cancellation, and what type of installment you’re paying.

If there is an unearned premium on the policy, you’re entitled to receive it in the form of a refund.

What is an unearned premium?

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In the insurance industry, you pay the premiums you’re charged for the coverage upfront before you get the protection. If you’re paying your premiums monthly, your payment will cover you for the next 30 days.

The premiums that you’ve paid for the upcoming coverage that you haven’t used are called unearned premiums. Anything that’s unearned must be refunded.

A majority of consumers don’t pay their car insurance terms in full. If you choose to set up an installment plan, you need to understand how that plan affects what you’re owed when you cancel your coverage.

Selecting a monthly installment plan means that you’ll pay for 30 days of coverage on every payment that you make. Your rate will be divided and they’ll use the daily premium to calculate your payments.

If you pay on the March 1st and cancel your coverage on the 10th, you’ll receive a refund for the premiums you paid from the 10th through the 30th of the month.

If you pay your premiums quarterly, you could be entitled to a larger refund. Paying quarterly means that you’ll pay for 90 days of daily premiums at a time. If your first payment is due in January, your next payment would be due on the same day in April.

In this scenario, you’ll receive your refund from the day you cancel until the date your next payment would have been due.

Will you be charged a fee for canceling your insurance early?

You’re entitled to receive a refund for the unearned premiums left on your account after your cancellation is processed. Some might be surprised when their refund is smaller than they thought it would be.

This happens when the insurance company that you’re insured with charges cancellation fees.

Not all companies charge cancellation fees but many do. Some carriers charge a fixed fee as high as $50 and others will charge you a percentage of your unearned premiums. Be sure that you know what the short-rate fee is before you cancel your policy just to save money.

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Make Sure You Have the Right Address On File

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Insurance agents typically ask their customers to send in a written cancellation request. You have to include your name and your policy number for your request to be official. You should also include your mailing address if you’re moving.

This is the address where your refund will be sent if you’re owed money.

Don’t pay too much for auto insurance for your entire policy term. If you know that you’re paying too much for your policy, you should start to shop around immediately.

One of the best ways to compare your premiums is to use our online rate comparison tool and get instant quotes. Shop the market, find a better rate, and cancel your old policy for a refund.