If your policy is up for renewal, you may be thinking about shopping for new coverage. Maybe you're exasperated with your insurer or maybe you're just looking for cheaper premiums.
Before you switch auto insurance companies, however, there are a few things you should consider:
Your renewal date
Keep in mind that you are not required to wait until it's time to renew your policy before you switch companies, according to Edmunds.com. If you get a good insurance quote from another insurer, you don't have to wait to take advantage of it.
Even though you can cancel any time, some companies have what's known as a short-rate cancellation provision. That means you'll be charged a certain percent of your yearly premium if you cancel your policy too early.
According to the Oregon Department of Consumer and Business Services, these fees let insurance companies recoup the costs they incurred to review the customer's application and issue the policy. These fees can be as much as 10 percent of the annual premium and usually are charged to those who keep their policies for less than six months before switching.
Ask your insurer whether you'll be charged a short-rate cancellation penalty. Do the math, and decide whether the savings from switching companies would make the fee worth it.
If you paid your entire yearly premium in advance, your insurance company will refund the remainder of your unused policy (minus a cancellation fee, if applicable). For this reason, many opt to wait until their policy expires to switch companies to avoid any hassles with refunds. If you're making monthly payments, they're simply stopped.
Once you have found a new policy and are ready to cancel your old one, don't make the mistake of simply stopping payments. If you don't give your insurance company a heads-up, it will bill you for the next period. And, like any unpaid bill, it will end up on your credit report, according to Edmunds.
Moreover, according to Edmunds, letting your insurance company cancel your coverage looks bad on your record. Auto insurance companies that you approach in the future will see that you let your coverage lapse and may label you a high-risk applicant -- and charge higher premiums or deny coverage altogether.
If done correctly, switching to a new auto insurance company is a fairly simple process:
- First, call your insurance company and find out what steps are required to cancel a policy. This usually involves a written notice, according to Edmunds.
- Double-check your new policy. If your old policy included extras like comprehensive and collision coverage, make sure the new policy you've got your eye on does, too. If it doesn't, you might save money in premiums but end up with just minimum liability auto insurance.
- Make sure it's a seamless transition. Your new coverage must be in effect before your old coverage is canceled. Otherwise, you'll find yourself in a coverage gap. That gap may be only a few days, but accidents can happen in the blink of an eye -- and you won't be covered.