How do I get out of my present policy?

Question: I’ve been shopping around and have found good car insurance coverage at a better price than I’m paying now. What do I need to do to cancel my present coverage?


You found cheaper coverage elsewhere and want to cancel your existing policy? No problem, at least on the surface. Your policy permits you to terminate your coverage at any time on request. But you need to read the small print.

You’ll probably be charged a penalty for canceling your coverage before the renewal date. This is called “short-rating”. Insurers are entitled to do this to compensate themselves for their administrative costs. The amount of the penalty will vary based on how many months remain on your policy at the time you cancel it. The more months remaining, the higher the penalty. For example, if your policy had been in force for just three months, you would likely be charged considerably more than one-quarter of the annual premium. So you’ll have to add the amount of the penalty to the new premium to see if you do, indeed, come out ahead. You may be better off waiting until your policy comes up for renewal.

Let’s look at another case. Assume you nd a better deal a week after you tell your agent you’ll take the policy that you and she have designed. Just because you have not yet received the policy, don’t assume it will cost you nothing to cancel it. Quite the contrary. Because the policy has been in force for such a short period of time, you would be charged the highest penalty. What will that do to your total cost?

If you decide to cancel at renewal time, do it in writing. And do it before the renewal date. Don’t just ignore the renewal notice. You’ll be liable for the penalty payment, and the nonpayment may look bad on your record.