Switching Car Insurance Companies − When Can You Cancel?

If you’re on the road to a better deal on car insurance, you may want to speed away from your current insurance company. That’s fine, but make sure you cancel your policy the right way when switching car insurance companies.

So, when can you cancel? The good news is that you don’t need to wait until your current policy is about to expire before getting new car insurance, says Jason Hoffman, president of J. Hoffman Insurance, an independent insurance agency in New York.

“That’s an old misconception,” Hoffman says. However, some insurance companies will try to convince you to stay so they get the full six months of premium. An agent may hope you finish out your current policy if they get their commission in a lump sum at the end, he says.

But if you can get better insurance at a lower price, switching car insurance companies can be done as quickly as possible, Hoffman says.

Here are four steps to take when switching car insurance companies:

1. Shop around when switching car insurance companies

Some consumers make the mistake of shopping on their own and choosing a cheap policy with skimpy coverage.

That’s a mistake that could cost you big down the road if you have an accident and find that you’re underinsured, Hoffman says. When switching car insurance companies consider using an independent insurance agent who can shop multiple insurers to get you the right coverage at a lower price, he recommends.

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To see what coverage you currently have, find your auto insurance declarations page. The page will show the start and expiration dates for your current policy, the name of your insurer, the VIN number of your vehicle and the current coverage.

“It’s a very important guide to use when you’re switching insurance companies,” he says.

When shopping for a new policy, steer clear of just getting the state minimum coverage, Hoffman says. For example, New York minimum coverage is bodily injury of $25,000 per person and $50,000 per accident and property damage of $10,000. But Hoffman won’t write policies for less than 50/100/50, he says.

“If you hit a Mercedes, it’s going to go well over $10,000 in damage,” he says. “And you don’t want it coming out of your pocket.”

2. Put your new auto insurance policy in place

Once switching car insurance comanies has been decided as your course of action, it’s time to buy your new policy. Before you do, make sure the company you’re considering has a good customer service track record.

Then you’ll have to fill out and sign an application with the new insurance company. On the application, you’ll provide information about yourself, any other drivers in the household, your driving history, the coverage amounts you want, and your signature. If you have a car loan, you’ll also have to provide information about the lender, Hoffman says.

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You’ll also have to put a down payment on the new policy. You may choose to pay for six months of coverage in one lump sum, or you may pay monthly by credit card or automatic bank debit.

Once you’ve set up payment, you’ll receive written confirmation from the insurance company that your new policy is in force.

3. When to cancel your old car insurance policy

It’s crucial to wait until you have written proof that your new policy is active so you don’t end up with a gap in coverage. A lapse in coverage can increase your insurance rates because it makes you look like a risky driver.

In a worst-case scenario, if you were to have an accident after canceling your old policy but before your new one kicked in, you could be on the hook for thousands of dollars in car repair costs and medical bills, and you could even get sued.

“You could have a big legal battle that could end up costing you everything,” Hoffman says.

So, timing is key. If you have an agent, they probably will ask you to sign a document giving them permission to cancel your old policy when switching car insurance companies. If you don’t have an agent, call your old insurer directly.

4. Verify that your old policy is cancelled

Your insurance company must stop charging you for your old coverage on the date and time that your new policy goes into effect, Hoffman says. You should receive a refund check from your old insurer for any excess premium you paid.

You also will get a letter in the mail verifying that you’ve canceled your policy, which you should keep for your records.

It’s very important to cancel your old policy, rather than just stop paying, because you don’t want the insurer to cancel your policy for nonpayment, Hoffman says.

As you can see, switching car insurance companies isn’t at all difficult.

“It’s usually pretty seamless,” Hoffman says.