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Car Insurance Cancellation Fees: Know This Before You Cancel

Car Insurance Cancellation Fees: What To Know Before You Cancel | KBD Insurance
Curtis Killen

As president of KBD, Curtis aims to simplify insurance for his clients. He’s helped lead KBD to become one of Canada’s fastest 400 growing companies according to the Globe & Mail.

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It’s important to understand the implications of cancelling your car insurance before your renewal date. Here we’re explaining everything you need to know about car insurance cancellation fees before you cancel, so that you don’t experience any unexpected charges. 

So, how do you avoid car insurance cancellation fees ?

Circumstances change, and sometimes cancelling your car insurance is necessary.

You could be moving provinces, selling your car, or simply be unhappy with your customer experience with your current company. 

Before you make any decisions that can impact your car insurance premiums, it’s important to understand the implications of cancelling your car insurance policy mid-term (and the potential fees involved).

OR if you’re looking for a quick car insurance quote, we can help with that too. 

Click below to get a car insurance quote online, or give us a call.

Click ahead to learn what you need:

What are car insurance cancellation fees?

Car insurance cancellation fees are charges imposed by insurance companies when policyholders terminate their car insurance policies before the end of the policy term. 

These fees cover administrative costs associated with processing the cancellation and adjusting the policy. 

The amount you’ll be expected to pay in cancellation fees for car insurance depends on the insurance provider and the terms outlined in the policy agreement. 

Typically, cancellation fees can range from a flat rate to a percentage of the remaining premium or the amount of time left on the policy.

As a policyholder, you should carefully review your insurance policy documents to understand the terms and conditions regarding cancellation fees before signing up. 

Some policies may have provisions for waiving cancellation fees under certain circumstances, such as selling the insured vehicle or relocating to an area where the insurer does not operate.

We’re explaining this in more depth below. 

Is there a penalty for cancelling car insurance?

While it’s generally possible to cancel your policy, doing so may come with car insurance cancellation fees. 

The penalties for cancelling your car insurance vary depending on several factors, including:

  • Your insurance provider
  • The terms of your policy & when you cancel
  • The regulations in your province or territory

Here are some penalties you may encounter if you cancel your car insurance in the middle of your policy term:

  • Car Insurance Cancellation Fees: Many insurance companies charge a fee for cancelling your car insurance before the end of your policy term. These fees typically vary between 2% – 7% and depend on factors such as how much time is left on your policy and the reason for cancellation.
  • Loss of Coverage: If you cancel your car insurance without having a new policy in place, you’ll lose coverage for your vehicle. This means you won’t be protected in the event of an accident, theft, or other covered incidents.
  • Impact on Driving Record: Some insurance companies report policy cancellations to provincial authorities or credit agencies. This could have consequences for your driving record or credit score, potentially making it more difficult or expensive to obtain car insurance in the future.
  • Legal Consequences: In Canada, driving without insurance is illegal and can result in fines, license suspension, vehicle impoundment, and other legal penalties. If you cancel your car insurance without obtaining alternative coverage and continue to drive, you could face these consequences.
  • Difficulty Obtaining Insurance: If you have a history of cancelling car insurance policies, insurance companies may view you as a higher risk. This could result in higher premiums or difficulty finding an insurance provider willing to insure you.

Pro tip: Review your insurance policy carefully and understand the terms and conditions regarding cancellation at the time of purchase. If you’re considering cancelling your car insurance mid-term, check with your insurance provider to discuss potential penalties that may apply.

How much can an insurance company charge to cancel a policy?

So, how much is it to cancel your car insurance early?

Cancellation fees depend on your insurer, your policy, your province, and can range from a nominal charge to a more substantial sum, depending on the circumstances surrounding the cancellation.

However, most insurance companies charge between 2% and 7% of your premium to cancel your car insurance before your term is up, and will opt for the higher charge the earlier you are in your policy. 

This fee is outlined in your policy documents or terms of service.

Whether you need to cancel your car insurance in Ontario, Quebec, or anywhere else in Canada, there are a few things to consider.

It’s important to know that while some policies may allow for cancellations at any time, others may have restrictions or penalties for early termination.

Give your provider a call to be sure. 

How to cancel car insurance without charges:

If you want to cancel your car insurance without incurring fees, there are several things to consider. First, review your insurance policy for cancellation terms and conditions. 

Some policies may offer grace periods or waivers for specific situations, like selling your vehicle or relocating to another province.

In order to cancel car insurance without fees, consider the following points:

  • Review Your Policy Terms: Familiarize yourself with your insurance policy’s cancellation procedures, including any applicable fees or penalties.
  • Explore Alternatives: Before cancelling, research alternative car insurance providers to ensure a smooth transition and potentially better rates.
  • Communicate with Your Provider: Let your insurance provider know that you intend to cancel and inquire about any available options to minimize fees.
  • Provide Adequate Notice: Give your insurer sufficient notice before cancelling your policy to avoid unnecessary complications.

By following these steps and communicating with your insurer, you can mitigate the risk of fees when cancelling your car insurance.

What should I consider before cancelling my car insurance?

Cancelling car insurance is a decision that should be with consideration of various factors, so that you don’t experience any unwanted surprises. 

Here are several key considerations to keep in mind:

1. Financial Implications of Car Insurance Cancellation

  • Cancellation Fees: Understand the potential fees associated with cancelling your car insurance policy early. Review your policy documents or contact your insurance provider to determine the exact amount you may be charged.
  • Refund Amount: Consider how much of your premium you may receive back if you cancel mid-term. Insurance companies often provide prorated refunds for the unused portion of your policy, but there may be deductions for administrative fees.
  • Future Insurance Costs: Evaluate the impact cancelling your current policy may have on your future insurance premiums. A gap in coverage or a history of cancelled policies could result in higher rates when you seek coverage again.

2. Coverage Needs

  • Legal Requirements: Ensure that you meet the legal requirements for car insurance in your jurisdiction. Driving without insurance or allowing your coverage to lapse could lead to fines, license suspension, or legal consequences.
  • Personal Protection: Consider your own financial security and potential liabilities in the event of an accident. Maintaining adequate car insurance coverage can protect you from costly repair bills, medical expenses, and legal claims.
  • Vehicle Protection: Assess the value of your vehicle and its susceptibility to risks such as theft, vandalism, or damage from natural disasters. Comprehensive and collision coverage can help mitigate these risks and provide financial support for repairs or replacement.

3. Alternative Solutions

  • Policy Adjustments: Explore options for adjusting your existing policy to better suit your needs and budget. Your insurance provider may offer discounts, deductible adjustments, or coverage enhancements that could make your policy more affordable or comprehensive.
  • Shop Around: Research other insurance companies and compare quotes to find more competitive rates or better coverage options. Consider factors such as customer service reputation, claims handling process, and financial stability when evaluating insurers.
  • Non-Owner Insurance: If you no longer own a vehicle but still require occasional coverage for rental cars or borrowed vehicles, consider non-owner car insurance as a cost-effective solution.

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4. Life Changes

  • Vehicle Ownership: If you’re selling or trading in your vehicle, you may need to cancel your current insurance policy or transfer coverage to your new vehicle. Coordinate with your insurance provider and follow proper procedures to avoid unnecessary charges or coverage gaps.
  • Relocation: If you’re moving to a new province or region, research the car insurance requirements and coverage options available in your new location. Your current insurance policy may not provide adequate coverage or comply with local regulations.
  • Changes in Driving Habits: Assess changes in your driving habits, such as reduced mileage or usage of alternative transportation methods. You may be eligible for discounts or lower premiums based on factors such as annual mileage, safe driving records, or participation in usage-based insurance programs.

5. Policy Review

  • Coverage Analysis: Review your current insurance policy and understand the coverage limits, exclusions, and deductibles. Ensure that your policy adequately protects you against common risks and liabilities associated with car ownership.
  • Policy Term: Consider the remaining duration of your current policy term and whether cancelling mid-term aligns with your long-term insurance needs and financial goals.
  • Communication with Provider: If you’re experiencing financial hardship or other extenuating circumstances, communicate openly with your insurance provider. They may be willing to work with you to find alternative solutions or payment arrangements.

Can I cancel my car insurance at any time?

Whether or not you can cancel your car insurance at any time depends on your policy’s terms and conditions. Some insurers allow policyholders to cancel their coverage without charges, while others impose penalties or fees for early cancellation.

Review your policy documents or contact your insurer directly to know how this applies to you. 

How long does cancelled insurance stay on record?

Cancellation of car insurance (and other) policies, can impact your insurance history and affect your future premiums, however it depends on the circumstances. 

As we covered above, insurance cancellation conditions vary among companies and provinces. In some cases, like cancellation for non-payment, insurance may stay on your record for anywhere from 3 to 10 years, potentially influencing your ability to obtain coverage or affecting the rates you’re offered in the future.

Additionally, it’s important to address any missed payments immediately, as this can prompt your insurance company to hike up your rates, or not renew you altogether. 

So, make sure you stay on top of your payments! 

What is a valid reason to cancel an insurance policy?

Valid reasons for cancelling an insurance policy vary depending on insurance providers’ terms. 

However, common scenarios that may warrant cancellation include:

  • Vehicle Sale: If you sell your car and no longer require insurance coverage.
  • Relocation: Moving to another province or territory may require changes to your insurance coverage, potentially leading to cancellation with your company.
  • Policy Dissatisfaction: If you’re dissatisfied with your current car insurance coverage or customer service, you can choose to switch providers or cancel your policy altogether.
  • Financial Hardship: Unforeseen financial challenges may prompt the need to reassess expenses, including insurance premiums – however this may still incur fees.

Before cancelling your car insurance for any reason, assess the potential consequences, including car insurance cancellation fees and the impact on your driving record.

Is it hard to cancel an insurance policy?

Cancelling an insurance policy is typically pretty straightforward. 

Cancelling car insurance in Ontario, Quebec, or any other province in Canada typically involves contacting your insurance provider either by phone or through their online portal. 

Be prepared to provide relevant information, such as your policy number and the effective date of cancellation, and to pay the car insurance cancellation fee if applicable.

If you’re insured with KBD, you can give our brokers a call here.

What happens if you don’t cancel your insurance?

Failing to cancel your car insurance when it’s necessary can have significant implications, both financially and legally. 

For example, maintaining insurance on a vehicle that you no longer own or drive can lead to complications in the event of accidents or other incidents. 

Something to be aware of if you plan on selling your vehicle. 

On top of this, if you don’t advise your insurer that you’d like to cancel your policy before it renews, you will also incur car insurance cancellation fees. 

By proactively cancelling your insurance when it’s no longer needed, you can avoid unnecessary expenses and ensure compliance with legal requirements.

Wrap-up

So there you have it: Car insurance cancellation fees in a nutshell. 

To recap, before you go and cancel your car insurance mid-tem, make sure that you’ve covered your bases:

  • Familiarize yourself with your policy’s terms 
  • Adhere to notice requirements
  • Seeking clarification from your insurer when necessary
  • Avoid unexpected auto insurance cancellation fees

For more information on car insurance cancellation and to explore your options, don’t hesitate to reach out to the team at KBD. 

We’re here to guide you through the process and provide the expertise you need to make informed decisions about your auto insurance coverage.