Ending Your Car Insurance Early
There are a few reasons for wanting to cancel your car insurance early, from “I totalled my car and I’m going to walk from now on!” to simply not liking your insurance company anymore and wanting a change. Perhaps you’ve found a better deal elsewhere and want to save money, which is fair enough! But can you just come out and cancel your car insurance without any problems?
Yes, you can. Remember, your car insurance is a service provided to you by an insurer, and you are not under obligation to keep it. You do have a legal requirement to make sure you are insured if you own a car, but that’s not the same as any sort of obligation with a particular insurer. You are free to cancel a car insurance policy at any time.
But there is going to be a fee.
Only a proportion of your annual insurance premiums (or monthly premiums if you pay by direct debit) are actually the insurance. Some of it is the costs for the insurance company for their administration and while you are entitled to the first bit back, the second part is slightly different. In addition to that, it’s impossible to know what percentage of your insurance is just that, and what percentage is admin.
When you go to end your car insurance early, your insurance company is going to calculate how much they have to give you back, and how much they can reasonably charge you as part of their administration costs – and you are unlikely to know exactly what that is until you try!
There is one situation where cancelling isn’t going to cost you too heavily and that’s within the fourteen-day cool-off period. Legally, all insurance companies must offer a two-week long cooling-off period where you are able to change your mind about taking on their services. This period starts from when you receive your documents or from the day the cover starts (whichever is later) so it may be a little longer than 14 days from the moment you made the decision to take on cover. Be sure to check this with whoever you’ve taken your policy out with.
However, though you will get back any payments you have made, the company is entitled to make an administration fee charge to you, and it’s unlikely to be free! That said, it’s still a cheaper option than cancelling at any later date and if you want out, getting out in the cooling-off period is the right way to go.
If you paid for your policy as an annual amount, then you will receive a rebate which comes to the remaining insurance minus any administration charges. Realistically, most insurers will estimate about two months insurance for their administration, so if you are cancelling with six months left to go, expect a refund that equates to approximately four months of insurance.
If you pay through monthly direct debits then you won’t be getting anything back, and in fact, the experience is likely to cost you. A lot depends on where in the monthly payment cycle you choose to cancel. For example, if you’ve just paid for a month then the extra charge is likely to be less than if you are coming close to the next payment. Expect to have to fork out an amount close to the following month in terms of fees though and remember – the day you choose to cancel will change how much there is to pay.
When your car insurance comes close to its renewal period, your insurance company will inform you and (usually) offer to simply renew it if they don’t hear from you. While doing nothing may seem like a relaxed option, it can actually lead to higher insurance premiums that you could avoid by being on the ball. Read our article on being loyal to your car insurer for more information on what to do at renewal time.
If it has been automatically renewed, you may find yourself with another 14-day cool-off period which can help if you just reacted late and want to change - depending on the insurer. For many though, passing the renewal date means being locked in for another year and paying fees to get out. So, if you plan to change insurers, don’t let the renewal date slip past unnoticed.
My car is a total loss and I don’t plan on getting another one – do I have to pay if I cancel my car insurance?
If you’ve made a claim on your car insurance, then you will not be able to get any sort of refund on that year’s policy. That means that if you are paying by direct debit, a claim early on will leave you having to make regular monthly payments even if you no longer have a car!
Sometimes this can lead to a situation where not making a claim and cancelling your insurance is cheaper than claiming – even in a write-off situation! Imagine your car is worth £1,500 and the excess is set to £500, with monthly insurance payments of £100 over 12 months. If your car is involved in a crash in the second month, just after you have made your payment, then you will be expected to pay £500 excess and ten more monthly payments of £100 – a total of £1,500 and the loss of any no-claims discount.
If, however, you choose to not make a claim at all and cancel the insurance, you’ll be out of pocket the same amount but without the loss of your no-claims discount going forward!
There are the early cancellation fees to consider too, but sadly, situations do arise where simply walking away from a crash is a better option than making a claim.
Of course, if you plan to replace your car, then keeping hold of your insurance is the right thing to do.
If you are changing to a different vehicle, either because of an incident or simply because you have bought something new, then your insurance company will be happy to move your policy over for you. Depending on the differences in vehicle, this could come with a change in the cost of your policy, but it is unlikely to come with any fees such as those you would be charged for cancelling the car insurance.
If you are getting rid of your car and have no intention of replacing it with another, then you will want to cancel your insurance from the date you no longer have the car. Not only does this stop you from paying insurance on a car you no longer own, but it also prevents any chance of someone who is not you causing a claim to be made on your insurance in your name!
Unfortunately, there is no exception to stopping a policy due to the sale of the car, so though you are entitled to cancel the policy at any time, you will still have to pay any associated fees.
A no-claims bonus (or no-claims discount) is built up for every full year of driving without any incidents. If you choose to cancel your insurance early, you won’t be entitled to any additional no-claims bonus for that year, but you won’t lose any bonus that you’ve already secured either.
If you are moving your insurance over to another company, many will be happy to continue counting your no-claims discount as part of their enticement to you as a customer but it’s not something they have to do. Discuss any details with your new insurer before you move over to find out if they will offer this.
If you intend to keep the policy for one of the two cars, you are likely to find the insurance company much more agreeable and the fees lighter – after all, they are keeping you as a customer. Simply let them know that you have sold or otherwise got rid of one of your vehicles and they will adjust the policy accordingly.
Remember, however, that you were probably receiving a substantial discount for multiple vehicles which will no longer apply if you go down to just one. It is likely that the policy for one will be greater than 50% of the amount you were paying for two, no matter which of the pair you choose to keep.
Taking a driver off your policy is one of many lesser changes that insurance companies deal with every day. It will affect your premium and so there will be a financial change (either positively or negatively) but the insurance company will not charge additional fees for making the change.
The same is true with other alterations, such as changing your address, your job title or the location where the vehicle is parked overnight. Each will have an impact on your policy costs but should not incur additional fees.
It is often worth making a complaint if you believe your insurance company is not charging a fair amount for their fees. In the first instance, you should follow the complaints procedure of the company – and remember to keep a record of any communication so that you can refer to it later if it becomes relevant and you need it.
The insurance company has eight weeks to determine the outcome of your complaint. If they fail to do so, or if you are not happy with their decision then you can contact the Financial Ombudsman Service who are likely to work in your favour. Upholding the rights of customers, especially their right to cancel, is part of the ombudsman service and if you are truly being treated badly, they will do what they can to make it right.
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