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HOME : Just the FAQs Ma'amCancellation PenaltiesI found out I could save $75 on my car insurance by switching to another insurance company. I told my previous company that I no longer needed my insurance, and asked it to refund my money for the 10 months still left on my policy. To my great shock, the insurer penalized me $100 on my refund. Now, I end up LOSING money instead of saving! Is the insurance company allowed to do this? In
this case, unfortunately, a penny saved is NOT a penny earned! Yes, your
insurer is legally entitled to charge you a penalty if you cancel
your policy before its expiration date, to compensate for administrative
costs. This
penalty is called "short-rating," but, in your eyes, it’s more
like getting "short-changed". The amount of the penalty will
vary from company to company and depending on how many months are left on
your policy when you cancel it. The more months remaining, the higher the
penalty, as you found out. If, for example, your policy had been in force
for just one month out of 12, you would be charged considerably more than
one-twelfth of the full annual premium. Often,
consumers agree to be insured by one company, but continue to shop around.
If they find comparable insurance at a cheaper price, they think that,
because they haven’t paid any money to the first company yet or received
the policy, they aren’t obligated to that insurer. Wrong! That
may not seem fair, but let’s look at it from another point of view. As
soon as an insurance company agrees to cover you – even if it’s only
by verbal commitment and even if you haven’t paid a cent yet in return
– that company is obligated to do so, to hold up its end of the bargain.
So once you and the company have agreed that you will be insured, both
parties must honour that commitment. If, on the other hand, you were to
cancel BEFORE an agreed start date, you would not incur a penalty. So
let’s say you decide to wait until renewal time to cancel your coverage,
to avoid paying a penalty. Don’t think that simply ignoring the bill
will do the trick. Once a renewal notice has been delivered to you, it
means the insurer has already committed to fulfill its obligation, so the
onus is on you to inform the insurer – in writing -- that you don’t
want to renew your coverage. If you’re not sure about the procedure, ask
your insurance provider. The
bottom line: before you instruct an insurer to cancel your policy, and
before you agree to coverage elsewhere, ask how much the penalty is.
Although you have the right to terminate your insurance policy at any
time, for any reason, don’t get "short-changed" in the
process. Note: Remember, policies vary, so when in doubt, Contact Us. |
