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You may want to cancel your current car insurance policy for many reasons. Maybe you may want to change car insurers. You could have moved to a new state. Or perhaps you’ve sold your car and don’t need insurance anymore.

No matter the reason, you can’t just hope your old policy fades into the sunset. Instead, you must cancel your policy. If you don’t, you could be on the hook for unpaid premiums and may wind up having to pay more for insurance later.

Most car insurance policies state that you can cancel your policy at any time. You only need to send a written notice with the effective date of cancellation. It is always a good idea (and in most cases a requirement) to notify your old insurer when you switch to a new insurer. While dumping your current insurer for another can be awkward, the process is usually pretty straightforward.

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Here is a quick overview of how to cancel your car insurance properly, as well as what might happen if you decide to let it lapse.

How to cancel your car insurance

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: Calling your agent is usually the quickest and most common way to cancel your policy. Depending on your insurer, a phone call may be the end of it. However, many 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 in your cancellation letter. If you’re dealing with an agent, send the letter to the agent’s office or fax it to the office fax number. You can also send it directly to your insurance company if you don't have an agent. Be sure to include the date, your name, policy number and requested cancellation date.

●  Stop by your agent's office: If you have a local agent, stop by the office to cancel. While it may seem a bit awkward, your agent isn't going to be as traumatized as you think unless your agent is a family member or close personal friend. Your current agent may make one last attempt to get you to stay but if you have made up your mind, simply decline, sign a cancellation form and hit the road. However, you may want to reconsider if your current agent manages to lower your premium while keeping the same coverage limits and deductible.

● Let your new insurer do the dirty work: Most insurers offer to cancel your old policy for you. This can eliminate stress if you’re uncomfortable giving your previous insurer the boot. They will need your policy number, effective dates and a signed cancellation letter.

An important reminder: Always start the cancellation process after you have a new policy in place.

"I usually recommend having a day or two overlap so that you know the new policy is in place before canceling the old one. You should write up the cancellation request if possible and get it to your current insurance company so that there is a paper or electronic trail of your cancellation," advises Penny Gusner, senior consumer analyst with insure.com.

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 insurance

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

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 properly cancel your policy.

Downsides to not canceling insurance properly

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

Grace period costs: 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. However, many insurance companies automatically put a policy into a "grace period" at renewal time if they don't receive a payment. This extends the policy for 20 days in the event you forget to send a payment or if it gets lost in the mail.

This grace period ensures you’re not driving without insurance because of an overlooked payment. If you’re switching insurers though and have no intention of sending in a renewal check, you could be on the hook for the grace period premium. Once the grace period has ended, your insurer will cancel your policy and send you a bill for the 20 days of coverage.

In most cases, it's possible to avoid paying for the grace period but you will have to contact the insurance company and show proof of your new policy.

"It will depend on the terms of your policy and state laws, but it's very likely that if you show proof of another policy being in place, your insurer would just cancel your policy or non-renew you back to that end date of your policy," says Gusner.

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. T

The good news is that you can usually get that money back by sending proof of your new coverage to your old insurance company. Nevertheless, it will most likely require a few phone calls and lots of time.

Flag 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, cancellation for "non-payment" can be an issue in the future.

Non-payment cancellations are a red flag on your insurance record. It may result in insurers considering you a higher risk and charge you higher premiums. Or you could even get denied for another policy. It’s always best to cancel your current insurance the right way to avoid issues in the future.

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:

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. If you happen to live in one of these states it doesn't mean you can drop your coverage and hit the road.

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.

Your car is in storage: You still need insurance even if your vehicle is in a storage unit. In most states, if the car is registered and has a license plate, it needs to be insured. In addition, if the storage unit burns down, is flooded or something in your unit falls on it, you will want insurance to cover the damage.

If you want to lower your premium, drop all coverages except comprehensive, which covers damage not caused by a collision. However, if you do this, don’t take it out on the road. You won’t be covered if you get in an accident.

Buying a new car insurance policy

Before you cancel your policy, you need to find a new one. Shopping your insurance coverage on a regular basis is always a great idea. There are a number of life events that should absolutely prompt you to compare premiums:

●  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

"I recommend shopping your coverage at least once a year and also at these times when your rates are most likely to change dramatically," advises Gusner.

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.