Steps To Switching Auto Insurance Without Paying Penalties

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Why should you stay loyal if your insurance company charges you $2,500 and you find an offer for $2,000 – why not make the switch? Insurance companies often take their customers for granted: many times they won’t give you discounts even if you’re a loyal customer with a clean track record. The premium price you pay will be affected in part by the insurance plan and in part by your qualifications (past driving record, the car you’re driving, etc). Example: if you have a traffic violation for speeding you might pay $2,600 average for insurance, but if you pick the right company you could pay as little as $2,000 which is close to what people with no traffic violations pay. There are many reasons to go about switching car insurance. You might find better rates online, your insurer spiked your premiums for vague reasons, you want to buy a new car, you find better coverage for your children/parents, etc. Regardless of the reason, switching car insurance is not a tedious process – it’s an easy and fast process.

The following are 6 steps to switching auto insurance in an efficient manner.

1) Do Your Homework

Don’t rush to cancel your insurance and look at what other companies are offering in detail. Researching car insurance companies has never been easier and with a few clicks you could have rates by many different competitors in your area – you then narrow them down by price. However, this is not always about price but reliability is a strong factor too. If an insurer has low rates but their reviews are horrible, would you want to rely on them in an accident? What if you purchase low insurance premiums but then find out the negotiators lower the price of your car and do every trick in the book to avoid paying your claim? Prices aren’t an indicator of the stability of an insurance company. 

If you enter your specific details (age, zip code, car model), you can analyze the biggest insurance companies and see which one offers the most savings compared to your current plan. To get a full picture, compare plan coverage such as occupation-based discounts (ex. veterans might get discounts), photo filing for claims and more. The big debate will be whether to go for big national insurers or local insurance companies. 

Big insurers are the way to go – if you picked one of the top 20 national insurers with the drop of a hat, you may be guaranteed quality customer service and fast payout in case of claims. Dealing with small insurance companies is high risk because they have limited finances and might go bankrupt depending on how many claims they receive a year. Your research should consist of analyzing which big names operate in your area, comparing their premiums and opting for the lowest possible premium.

Tip: Don’t use third party quoting services when you look up premium rates online. Most companies will give you a free quote on their website or if you call them.

2) Call Your Insurance To Cancel

Once you’ve analyzed the competitor’s premiums you will usually narrow down your options to 2 or 3 competitive insurers who offer you better rates than your current insurer. Don’t be afraid to call your insurer and tell them you’re going to cancel your contract if they don’t lower your premiums. Tell them that you’re getting a better premium from a competitor that gives you the same coverage. The insurance company may fight for you! 

The agents will do everything to try to convince you to stay on their current plan, and this might actually save you a lot of trouble if you accept the deal. If the insurer offers you a better deal that matches the prices you’re getting from competitors, you have no reason to drop them in the first place. However, you have made it known that you’re ready to cancel your insurance. If they won’t give you a lower premium, there are many insurance companies who appreciate the value of your business and will offer you a more competitive rate.

3) Get A Refund 

Before you cancel, there might be penalties that apply – usually, the penalty for cancelation is $50-100 depending on the insurer. If you call your provider and fail to settle on a better deal, cancelation is the logical choice. Open your insurance website and find the section about cancelation penalties in their FAQ/Help that will help you learn how much you need to pay for cancelation. The next step is to request a refund on your premium. Most insurance companies will refund the rate for your unused premium. 

If you paid $2,500 for your annual premium and you cancel 6 months in, the insurance company has to refund you $1250. Certain insurance companies might let you off the hook without a penalty, but most will require at least $50 before they let you cancel. Calculate the penalty fee: if the penalty adds up to more than a monthly premium, it might be wise for you to stick with the company until the end of your term. This way you can switch to a new provider as soon as your policy expires without paying cancelation fees.

4) Avoid A Lapse

Insurance lapsing is a dangerous thing that ties into the refund – when you’re switching providers it’s better to wait until the end of the term because if you switch and fail to purchase insurance on the same day, this will leave a lapse on your insurance. Lapsing creates a problem for you as a driver. Most insurance companies will forgive a lapse that lasted a few weeks or a month, but your research has to be done well in advance to immediately switch to a new provider. 

There has to be a smooth transition from your current provider to the new one without a huge gap in timing. If you fail to switch immediately, your new company might charge you a higher premium because you drove a car without insurance and you’ve become a high-risk driver without realizing it. Arrange your new insurance in advance. This way you won’t be left with a gap (aka. lapse) in your driving history.

5) Double-Check That The Policy Was Canceled

Most drivers assume that if they miss a single payment their car insurance will automatically cancel their policy. This holds true in practice, but it doesn’t make an actual termination which is what you require to switch to a new provider. Once you stop paying your premiums, the car insurance will report you to the credit bureau for failure to make payment. 

This creates new problems: you’ll be driving uninsured, your credit score will drop and you won’t actually cancel the policy. The insurance provider will assume you’ll make a payment eventually and won’t cancel your plan. This keeps you on the book for future billing. You have to call the provider or visit their offices to have a termination written in paper. This will ensure that you don’t get billed in the future. If the auto insurers accidentally bill you and your credit report is affected, you’ll have a written document that testifies you can dispute the charge and clean your record.

6) Print Your New Car Insurance

Once you switch to a new plan and your old plan is terminated, the new insurer will assign you an insurance ID card that you must bring in your vehicle. If the police pull you over they will ask for that new documentation. Make sure the papers are printed and readily available! If you get in an accident you will also need access to your insurance ID card in order to facilitate the meeting between your insurance agent and the agent of the other person.

Can I Get A Refund For Unused Premiums?

Yes. Most large insurers will issue a refund for the unused premiums you’ve paid in advance. If you paid for 12 months and you decide to cancel 6 months in, you will get reimbursed for the remainder of 6 months. Remember to check your insurer’s refund policy in advance to determine if they issue refunds for unused premiums.

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