Before you can drive a car legally in 48 states, you need active car insurance, and that means paying in advance. But what if your circumstances change and you don't need the same coverage or any coverage? Are you out the money?

Thanks to reasonable policies at most automobile insurers, you can secure a refund of the money you've paid toward future car insurance. How much you get back, and whether there is an auto insurance refund fee, depends on the company's policies, how far ahead you have paid, and the reason for the cancellation.

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In this article we explain how auto insurance refunds work, who is eligible, and when refunds apply. Plus: the right way to cancel car insurance (and when you never should).

Who Qualifies for an Auto Insurance Refund?

Common reasons a person might not need the car insurance they've paid for include selling a car, switching to a motorcycle or RV, or changing insurance companies to take advantage of lower rates. A less common reason someone might deserve a refund is when the insurer cancels the policy.

In these cases, whatever amount you've paid toward future coverage is subject to a refund, less a possible fee.

  • You paid in full: You stand to receive the largest amount in refund if you paid for the whole policy in advance. You're entitled to a refund for the months and days between your cancellation date and the end of the policy. So, if you paid $1,200 for six months' coverage up front and are cancelling at the two-month mark, you can expect a refund around $800 (for four out of six months, roughly 66%).
  • You're paying monthly: Your refund will be smaller when you have paid only to the end of the month or current billing cycle. Let's say the next premium is due on the 19th and you call the insurer to cancel on the 10th. Now it's clear that you had paid for eight days you won't need. The insurer will divide your premium by the number of days in the billing cycle and refund eight days' worth.

Modifying Your Coverage Will Probably Get You a Credit, Not a Car Insurance Refund

Car insurance is highly customizable today, and using BindRight can help you find just the right levels of coverage and nothing you don't need. Sometimes you may want to change your policy before the end date. Adjusting your coverage mid-term will likely result in a credit, not a refund.

Common reasons to adjust a car insurance policy mid-term:

  • Removing coverage from a vehicle. For example, if your car is old and not worth much, you might decide to drop comprehensive and collision coverage.
  • Tweaking your deductibles (more on this later)
  • Removing a vehicle from a multivehicle policy
  • Moving to a lower-risk area
  • Removing a high-risk driver from your policy

One way people customize their auto insurance is by changing the deductibles. When you file a claim on your car insurance, the deductible is the amount you must pay before the insurance kicks in to handle the rest. For example, if the garage wants $2,300 to fix your truck after an accident and you have a $1,000 collision deductible, you will need to pay a grand out-of-pocket and the insurance company will pay the remaining $1,300.

Some states require insurers to waive a collision deductible in the wake of certain accidents, like if the insured car is legally parked and hit by an identified vehicle.

Collision deductibles range from $100 to $2,500, so you can see how much room there is for customization. Higher deductibles lead to lower premiums. But again, if you raise deductibles and your premiums drop, you should expect to be credited with the difference rather than given a refund.

The Right Way to Cancel an Auto Insurance Policy

If possible, time your cancellation for the end of the term or billing cycle so that you will get your money's worth and won't need to rely on a refund. Because timing is critical, reach out to the insurer by phone or the company's website or app, not by mail.

If you have sold one car and bought another, don't cancel your car insurance until you have new coverage lined up. Your insurer can help you transition between vehicles smoothly over the phone. Money you've prepaid on the old car's policy will be moved to the new policy.

If you're switching insurers, know the start date of the new policy before canceling the old one effective the same day.

Never cancel your auto insurance unless …
Because a lapse in car insurance leaves you unable to legally drive, and because a future insurer might charge you higher premiums because of the gap, you should cancel auto insurance only for these three reasons:

  • You've already bought a policy at another insurer
  • You're getting rid of your car completely
  • You're moving out of the country

Auto Insurance Refund Frequently Asked Questions (FAQ)

Will I get the car insurance refund in the form of a check?

The form your refund takes depends on the insurer's procedures, but generally you will receive the refund via the same channel you paid your last premium. For instance, if you paid with a check, you will receive a check for the refund; if you paid with a credit card, the refund will post to the credit card account.

How long will my car insurance refund take?

You can expect to get a refund within two weeks of the cancellation date. The industry norm is 10 business days whether the refund is a check in the mail or a credit to a bank account/credit card.

I'm moving to a new state, so do I have to cancel my car insurance?

Probably not. Your current insurer probably operates in your new state too and can adjust your policy accordingly. Since location is an important factor in determining premiums, you may pay more or less based on your new residence. The insurance company can set up coverage that moves with you across state lines.

Why do auto insurance companies cancel people?

Insurers reserve the right to cancel drivers for a number of reasons, but here are the main ones:

  • Failure to pay.
  • You told a lie on your application or claim.
  • Your driver’s license or vehicle registration was suspended or revoked.
  • You have too many at-fault accidents or moving violations.
  • You have a medical condition or a DUI conviction that makes you a high-risk driver.

How would the police know that my policy is cancelled, especially if I still have the paper showing a current date range?

The paper you keep in the glovebox showing a "current" auto insurance policy may be enough to satisfy a police officer—if you're lucky. Police use various ways to check a driver's insurance status. Some cops simply check paperwork, while others look at databases fed by the DMV. Automated license plate recognition (ALPR) cameras capture your tag, convert it to text, and run it through various checks, all within the first moment of a traffic stop. The odds are not in your favor.

Driving without auto insurance is an expensive risk, so do all you can to avoid it. Not only could you face fines and jail time in the short term, but you will pay higher premiums later and for a long time, especially if you've been deemed a high-risk driver because of the coverage gap. That's why dropping your insurance for a few months while continuing to drive doesn't really save money.

Does everyone charge a cancellation fee?

No, not all insurers will charge a fee when you cancel your auto insurance. Some companies even boast of no cancellation fees on their website (Geico, Progressive, and State Farm, for example). Even when an insurer normally applies a cancellation fee, some states won't let them. Read up on the cancellation policy at your insurer's website.

Can someone be ineligible for an auto insurance refund?

If an insurer cancels a policy due to no payment, the client is not eligible for a refund (even if there were somehow money to refund).

I got a DUI and my insurer dropped me, but am I still eligible for a refund?

Yes, you are. Withholding a refund is not one of the (many) punitive consequences of impaired driving. It is an insurance company's prerogative to cancel high-risk drivers, but they can't refuse to refund the money you paid toward future coverage.

Final Note

A refund on your auto insurance could cost a fee. For example, if you cancel your policy before the end date, the company might charge a cancellation fee. Nonetheless, refunds are worth seeking. Money spent on unnecessary future coverage is money wasted.

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