Inevitably, not all insurance policies remain in force for the entire policy period.  Let’s face it, insurance policies are cancelled early by the consumer for all sorts of reasons.  Due to economic conditions, a small business could be forced to close its doors.  An individual family could find a cheaper alternative to an existing auto or home policy.  Whatever your reason for cancelling a policy here are a few tips to ensure your voluntary cancellation is in your best interest.

Never cancel an insurance policy when you still need policy

Cancelling a policy while the need still exists can be very dangerous; especially for auto policies.  Recently, we had a new client call and ask to remove a child’s vehicle from the policy.  However, this vehicle titled in dad’s name.  We asked if his daughter obtained insurance and whether he could prove the existence of a replacement policy. Once he stated he could provide proof of new coverage for his daughter’s car, we processed the removal of the extra vehicle and documented the details of the call in our system.

This can also happen in the case of divorce-separations.  Once a divorce is finalized, the first named insured may request to removal of a  spouse.  In cases like these, insurance requires the agent (with good reason) to obtain some type of documentation confirming that we’ve spoken to both parties. In this case we must either write the former spouse a new policy or confirm the existence of insurance coverage elsewhere.

In both cases, this  prevents us from pulling the proverbial rug from underneath a client.  If the spouse being removed has neglected purchasing a replacement policy, removing them prematurely could cause an unnecessary gap in coverage.  What would happen if that spouse had an accident?  In the case of the daughter, if dad still has a car titled in his name, he could still be considered liability if a car titled in his name is improperly covered or uninsured.  What would happen if this case?

Make sure replacement policies cover the same exposures

Many times, consumers look a lower rates only.  As a result, as a result, some companies or agents will provide lower rates by reducing or removing coverage on auto and home policies.   As a result, the reduction of premium could open exposures to loss that one had not consider.  This can also be very costly.

Imagine having an auto insurance policy that has everything you could possibly ask for.  Imagine having a policy with high liability limits, personal injury protection, uninsured motorists, physical damage for the car, towing, rental reimbursement, death and indemnity coverages included.  After having this policy, you see a commercial for “no-credit check insurance policy” that will save your $30 per month.  In purchasing that policy, you’re convinced that you only need state minimum liability and physical damage coverage with a $500 deductible.

After switching policies, you have an accident in which you’re severely injured.  Aside from missing time from work,  you’re left with paying your deductibles for both auto insurance, and health insurance while living on less money due to unpaid sick or lost business time.  In this case, was $30 per month or $360 per year worth removing the personal injury protection?  What if this was a claim with an uninsured driver.  Was it worth the lost uninsured motorist bodily injury coverage?  After a claim is the worst time to find out that you purchased a worthless policy.

Policy and agency fees are generally non-refundable.

If the insurance company charges you a fee and you cancel before the end of a policy period, you will not get the fees back.  That includes my agency as well.  This is especially important when it comes to business policies.  As an insurance agent, I am very careful in charging fees.  I understand that there are a number of people that would love to do business with you.  So, we only charge fees when it is absolutely necessary.

We charge fees for specialty cases that require a high deal of special handling or manual processing.  Since the insurance agency has to refund commissions to the insurance company if your policy cancels for any reason, we charge fees to offset early cancellations on specialty policies.  This helps ensure that we remain profitable in our agency.

You may be required to provide other documentation or signatures.

Our insurance providers require a signed cancellation letter on all early cancellations.  In personal auto and home insurance, we also require a copy of the replacement declarations on filed along with the signed cancellation letter.  This ensures that we help prevent causing an unnecessary gap in insurance coverage.

Some policies have portions which are non-refundable.  (Minimum earned requirement)

Because some commercial insurance policies require that we apply for coverage in residual (high risk/surplus) markets, we come across strange policy requirements.  For business policies, we see a 25% minimum earned requirement.  This means even if your policy one day after your policy starts, you are still liability for 25% of the policy’s annual premium along with any fees associated with the policy.

Policies with regulatory filings may have different cancellation requirements.

One thing that makes it difficult to cancel a policy is the presence of state or federal filings.  This is most common with transportation (trucking) policies which require Form E filings.  Even if you stop paying for a transportation policy, having filings requires the insurance company to cover you for an additional 30 days or so.  As a result, you continue to incur charges that can be sent to a collections department.

In cases like these, in order to immediately cancel a transportation policy, you will have to completely shutdown your business and provide that proof along with a signed cancellation letter for the insurance company to cancel your insurance policy.

Cancelling insurance is serious business

In the end, cancelling an insurance policy is serious business.  We understand that stuff happens.  If you have to cancel a policy, make sure that you’re doing for all the right reasons.  When replacing a policy, make you understand the differences in coverage.  If you’re a business, keep in mind that there may be other requirements prior to completing your cancellation request.  In all cases, understand we will require details regarding your new insurance along with a signed statement requesting your cancellation.