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Most of the time, canceling your car insurance policy is a straightforward and easy process — all you have to do is call or email your insurance company. However, you want to make sure you have another policy in place before canceling, or you will experience a gap in coverage.

Additionally, you will want to cancel your policy within a certain timeframe to avoid penalties or possibly getting flagged for a lapse in coverage. Such a flag can make getting coverage in the future more expensive and difficult.

Read on to learn how to cancel your car insurance, as well as what might happen if you decide to let it lapse.

How to cancel your car insurance policy

You may just need to mail, fax or email a quick letter stating that you want to cancel as well as the effective date of cancellation. The cancellation date is key. If you’re getting coverage elsewhere, make sure your new policy is in place and active before canceling your old policy.  Otherwise, you may find yourself out on the road with no coverage.

Here are a few ways to cancel your policy:

  • Call the insurance company: Calling your agent is the quickest and most common way to cancel your policy. However, some insurance companies require a signed cancellation notice. Ask your agent for details of the cancellation process and have them send over any cancellation documents that need to be signed.
  • Mail or fax: If you don’t want to call, it’s possible to mail or fax your cancellation letter. The signed letter should include your full name, address, auto policy number and date of requested cancellation on a specified date.
  • Stop by your agent’s office: If you have a local agent, stop by the office to cancel. If cost is the reason you are canceling, you can also ask your current agent about lowering your premium while keeping the same coverage limits and deductible.

An important reminder — always start the cancellation process after you have a new policy in place. Allow some overlap so that your new policy is in place before canceling the old one. Also, make sure there is a paper or electronic trail of your cancellation.

The final step in all of this is to get a confirmation of cancellation from your insurer or agent. This confirms that your policy is formally canceled. Your current insurer should also refund any pre-paid premiums minus cancellation fees.

Always read the fine print when canceling your car insurance policy

The majority of insurance companies make canceling a policy a fairly straightforward process. However, others may require some attention to detail.

“Depending on the insurance company, there may be different cancellation procedures. It is important to cancel a policy correctly so that you are not charged any unnecessary fees or penalties,” says Fred Hoffman, founder and chief executive of Life Insurance Guideline.

Here are a few details to check:

  • Cancellation fees: Some car insurance companies charge a cancellation fee. The fee can range from $25 up to a short-rate fee, which breaks down to 10% of the remaining policy premium. As an example, if you signed up for a 12-month policy and canceled after nine months, you would be on the hook for 10% of the remaining three months.
  • Notification: The notification period can vary from canceling immediately to requiring 30 days notice to dump your policy.
  • Cancellation letter: As mentioned earlier, some insurers require a cancellation letter while others may be satisfied with a verbal cancellation over the phone. Your policy should spell out what you need to do to cancel your policy.

What to look out for when you’re canceling your policy

Not canceling your policy accordingly leads to problems. Here are a few reasons to make sure you cancel the right way:

You may have to pay extra fees: If you fail to properly cancel your policy and don’t make a payment at renewal time, you will eventually be canceled for non-payment. “Don’t let your policy just lapse for non-payment,” Walden says.  “A surprising number of people think that they can stop paying their insurance premium and their provider will eventually drop them. This is a mistake. The company will continue to insure your vehicle, and they’ll continue to charge you for coverage,” Walden says.

You may end up paying for both policies: This usually pops up if you pay for your current car insurance via electronic funds transfer. If you fail to notify your insurer that you’re canceling your policy, the policy will simply renew on your renewal date. They will take the money from your account. You can usually get that money back by sending proof of your new coverage to your old insurance company, but it will most likely require a few phone calls and lots of time.

You will be flagged for non-payment: If you decide not to contact your current insurer and don’t pay your premium, your old insurer will cancel your policy and drop you as a customer. However, non-payment cancellations are a red flag on your insurance record. It may result in insurers considering you a higher risk, which leads to higher premiums or even policy denial.

Why canceling your insurance isn’t always a good idea

Dropping your car insurance can be a mistake. Here are times you may want to rethink that decision:

You’re moving to a state where car insurance isn’t required: Currently, there are only two states that don’t require drivers to carry car insurance — Virginia and New Hampshire. But even though insurance isn’t a requirement, you’re still financially responsible for any accidents or damage caused by your vehicle. In states that don’t require insurance, you usually have to meet certain financial thresholds that prove you can cover the costs of any at-fault accidents. Unless you are fairly wealthy, you shouldn’t be out on the road without coverage.

You don’t drive much anymore: Even if you barely drive anymore, you still need car insurance. Not only is it the law in almost every state, but insurance can also be a financial lifesaver if you are in an accident. Car accidents can lead to expensive medical bills, legal fees and the cost to replace another person’s car, making car insurance a necessity. Talk to your car insurance agent to see if they can lower your premium. Insurers often give discounts to people who don’t drive much.

How to buy a new car insurance policy

Before you cancel your policy, you need to find a new one. Shopping for your insurance coverage on a regular basis is always a great idea. You may want to compare premiums during the following life events:

  • Purchasing a car
  • Putting cars on a multi-car insurance policy
  • Adding or removing a driver from a policy
  • Marriage or divorce
  • Adding a teen driver
  • Buying a house
  • DUI or major violation
  • Accident
  • Change in credit score

Industry experts recommend shopping your coverage at least once a year and anytime you experience a major life event. When shopping for coverage, get quotes from at least five different insurers and compare apples to apples when it comes to coverage levels and deductibles.

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