There are many reasons why a vehicle owner may want to cancel their insurance during their policy’s term and wonder about auto insurance cancellation fees in Ontario. Maybe you’ve had a bad customer service experience with your current company, or you filed a claim and were unhappy with how it was settled. Perhaps you’re moving to another province or country. Or it might be that you found a great deal with another insurance company that saves you money.
Regardless of why you want to cancel your insurance, there are some things you should know before pulling the plug on your existing policy and facing auto insurance cancellation fees.
Frequently Asked Questions
Is there a cancellation fee for car insurance?
One of the first things you should know before cancelling your Ontario auto insurance policy is that you will probably be charged an early cancellation fee; you are breaking a contract, after all.
Most of the work an insurance provider performs to service your policy is completed when setting up a new policy or upon renewal. For this reason, provincial insurance regulators (for example, the Financial Services Regulatory Authority of Ontario and the Alberta Insurance Council) allow insurers to charge a fee to cover some of those costs should you cancel your policy early.
Most auto insurance cancellation fees in Ontario use what is known as a “short-rate” when calculating a refunded premium. For example, suppose your annual premium is $1,200, and you cancel your policy exactly six months into the year. In that case, you might expect a $600 refund for the remaining time left on your policy term, but that probably isn’t the case. Using a short rate to calculate how much your refund will be, the insurance company might only pay you $500, with the missing $100 essentially acting as a cancellation penalty.
Every company determines its own short-rate calculation, so your refund may differ.
If you cancel your policy because you found a cheaper rate elsewhere, the cancellation fee may eat into the savings and make the decision to switch insurers less obvious.
It should be noted that some insurance companies will not charge cancellation fees if you need to cancel for certain situations such as leaving the country or losing your license for a medical reason. It can pay to explain your circumstances and ask.
Can I cancel my auto insurance at any time in Ontario?
In Ontario, you can cancel your insurance at any time during the policy term, however, in most cases, you will be subject to the cancellation fees outlined above. It’s also good to remember that because the fees are based on a percentage of the total premium being refunded, you will pay a higher dollar amount the earlier you are in the policy term. For example, a $1,200 policy that is cancelled in the last month of the term might result in a cancellation fee of $10, while the same policy cancelled in the first month of the term would see a cancellation fee of $110.
Don’t forget that you can always cancel your policy effective the expiry date without paying any cancellation fees.
To cancel your insurance policy, you will need to send a request in writing to your insurance provider asking them to cancel the policy. You will need to include:
- Date of request
- Your name
- Policy number
- The date you want the cancellation to be effective
What happens if I cancel my insurance policy early?
If you cancel your insurance policy early, you will need to choose a cancellation date and send your request in writing as outlined above.
The company will process your request, and coverage will cease on your requested date. They will confirm the transaction in writing and issue you a refund for any amounts you owe after the cancellation fees. If you’re paying using a monthly payment plan, you will likely need to make one final payment after the cancellation to cover the fees.
How long does insurance cancellation stay on record in Ontario?
If you are the one asking for a cancellation, you will not have any adverse history on your insurance record. However, if your insurer cancels your policy due to nonpayment or bad behaviour, such as committing insurance fraud or being convicted of a DUI, that cancellation will appear on your insurance record for three years.
The reason for this reporting is to protect insurers and brokers from people who don’t pay their premiums either on purpose or due to financial difficulty. By presenting this information to the insurer when they have been asked to provide new coverage, they can make a more informed decision about whether to accept the risk. They can also decide whether certain terms should apply, such as payment of the full premium upfront.
What do you need to consider before cancelling insurance on your vehicle?
Cancelling an insurance policy shouldn’t be taken lightly, as some things could come back to haunt you, especially if you are switching insurers for a lower premium. These include:
Cancellation fees – as outlined above, these fees can add up, possibly eating into any savings you might expect if you switch companies.
Loss of loyalty credit – If you have been with your current provider for several years, you might receive a loyalty discount. This credit will not be applied by the new insurer until you have built up several years of experience as a reliable customer.
Loss of combined coverage credit – If you have your home and auto coverage with the same insurer, you will probably receive a substantial credit on both policies. This credit can be up to 10% on your auto policy and up to 50% on your home policy. Cancelling your auto insurance if you receive this credit could substantially increase your home premium. It’s important that you view your insurance needs holistically to avoid any unexpected expenses.
Loss of multi-vehicle credits – If you have a multi-vehicle credit on your policy and you found a better deal on insurance for one of your cars, you may lose the multi-vehicle discount currently on your policy. This can result in the premium for the remaining vehicles increasing, possibly negating any savings.
Loss of coverage for other items – If you own any “toys” such as Sea-Doos, boats, trailers and other non-standard vehicles, insured by the same company as the policy to be cancelled, you may find that insurers no longer want to insure these higher risk items without also insuring your main home and auto policies. In this case, the insurer may decide to not renew coverage for pleasure crafts and leisure vehicles upon expiry of the current term, forcing you to find a new insurer at unknown rates.
Continuous coverage – Before cancelling any insurance policy, you need to ensure that you have continuous coverage, which means that your new policy begins precisely when the old coverage ends. In addition to exposure to uninsured risks, gaps in coverage can be illegal (in the case of driving without auto insurance) and can increase the cost of future policies.
Recent convictions – Insurance companies don’t usually order a new copy of your driving record every year. If you happen to have new tickets or infractions on your record, it’s extremely probable that your new company will alter your quoted premium to reflect the increased risk. Consider getting your quotes from a company such as aha insurance, that guarantees that the price you are quoted is the amount you will pay. You can learn more about how insurance companies use driver records here.
Down payment or admin fees – Finally, you should understand any down payments your new insurer requires to issue your policy along with any administration fees they charge for setting up a new policy. Both can impact your decision whether to keep your current coverage or switch to a new provider.
There are times that it makes good sense to cancel your insurance policy. However, before you issue the cancellation, be sure to talk to an insurance professional to understand the bigger picture and make an informed decision.