Many Canadians understand that even if you’ve been with your current car insurance company for years, there are times when you just have to say goodbye and switch to another company. Sometimes, changing car insurance companies mid policy is due to a poor customer service experience or an unsatisfying claims settlement. Other times, it is entirely a financial decision, such as when you find a cheaper price with a competitor.
These aha moments don’t always align with your expiry date, and it is sometimes tempting to just cancel your policy and move to another company, but is that always the best decision? In this post, we will discuss changing car insurance companies mid-policy and explore the benefits and perils of doing so.
Frequently Asked Questions
Can I change my auto insurance whenever I want?
When you purchase an auto insurance policy in Alberta and Ontario, you almost always receive a 12-month policy contract term. However, like most contracts, you can usually cancel them early. Insurance policies can usually be cancelled at any time. Be forewarned, though, that early cancellation of an insurance policy usually results in a cancellation fee being applied to your policy, reducing the amount you will receive as a credit. You may even owe the insurance company if you use a payment plan. Learn more about cancellation fees below.
When changing car insurance companies mid policy, how does switching work?
Changing car insurance companies mid-policy is fairly straightforward. To make the switch, you simply need to follow these steps:
Find new coverage – If you‘ve already decided to switch insurance companies, the odds are that you’ve already shopped around for new coverage and received a few quotes. Before cancelling your existing insurance policy, it’s important that you have new coverage issued in your name (or “bound” in insurance-speak). Having a quote is not the same thing as having coverage, and it is not uncommon for credits, surcharges, and overall premiums to change between receiving a quote and having a policy bound or issued (unlike other insurance providers, aha insurance guarantees our quotes; what we quote is what you will pay). You will want to have copies of your new “pink” liability slips in hand before proceeding to cancel your existing policy.
Cancel your existing policy – To cancel your existing insurance policy, you will need to send a written request to your provider that includes:
- Named insured listed on the policy
- Policy number
- Effective date of the cancellation
- Your signature and the date of the request
Your previous insurer will cancel the policy effective the date you request and calculate any premium owed to you or from you.
Please note that most insurance companies will not allow you to backdate a request for cancellation, as the policy was in force during that time period, and they would have been on the hook for any accidents or claims.
When shouldn’t I change my insurance company?
There are some occasions when you may want to seriously consider whether you change insurance companies or not.
Recent tickets – because most insurance companies don’t order driver records for each person listed on the policy every year, your insurance premium might be calculated without taking any recent traffic violations into account. When you apply for new insurance, the company will almost certainly order a driver record from the province and use the most up-to-date information to calculate your final premium, which may bump your originally quoted rate.
Recent accidents – insurance companies do not re-calculate your policy premium mid-term. Similar to traffic tickets, If you have experienced an accident or at-fault claim earlier in the policy period, you will not be penalized until the start of the new term. Your new insurer will order a policy history when you purchase insurance, and their rate will include any penalties for recent accident activity.
Bundled home and auto insurance – most insurance companies offer a significant credit if you place both your home insurance and auto insurance with them. This credit can account for 10%-20% savings on your car insurance but can be as high as 50% on your home insurance. Suppose you are receiving a discount for bundling your coverage and cancelling the car insurance portion. In that case, your home insurance could see an increase in premium that can easily eat up any savings you may have expected from changing car insurance providers.
Accident forgiveness – If you have accident forgiveness on your policy and have experienced a claim that was forgiven, you may want to think twice before changing companies. It is very unlikely that the new insurer will forgive the accident and provide you with a similar “accident-free” discount on your policy.
Are there cancellation fees involved in changing car insurance companies mid policy?
When you cancel an insurance policy, you’re essentially cancelling a contract, and every contract outlines the penalties involved in ending the arrangement early. In almost all cases in Ontario and Alberta, cancelling your car insurance policy early will result in some sort of cancellation fee.
In most cases, insurers use what is known as a “short-rate” when calculating any credit paid to you. To help understand how this works, every day an insurance policy is in force, the premium for that day is “earned” by the insurance company, meaning they provided the service they offered and are paid for that service. If an insurance policy costs $365, the company will earn one dollar each day. If you cancel your policy on the 300th day, you might expect to receive a refund of $65.
However, a short rate calculation will penalize you for cancelling early, and you might only receive $55. Each company uses a slightly different way of calculating its cancellation fees. Be sure to ask your current provider what the fees would be prior to jumping ship to prevent these costs from eating into any savings you might expect from switching providers.
Do I get a refund after changing car insurance companies mid policy?
Suppose you paid for your auto policy upfront and cancelled it mid-term. In that case, you can expect a refund for the premium that would have been applied to the period after the cancellation date, minus any cancellation fees. However, this is normally not the case if your premium is paid through monthly payments. Since you are paying for insurance as you use it, you won’t receive a refund. You may also need to pay the insurer an additional amount to cover cancellation fees.
What are gaps in coverage?
A gap in coverage occurs when you cancel your insurance policy before you have another policy effective on the same date as the cancellation. For example, if your insurance policy is cancelled on January 1 and your new policy is effective on January 5, you will be without insurance protection for several days.
This is a very serious situation. Not only are you breaking the law by not having the minimum amount of insurance on your vehicle, but it also means you will not be covered should you experience any type of accident or loss during this gap period. And if we know anything about Murphy’s Law, we know that trouble often happens when you can least afford it.
How do I change auto insurance providers?
Changing car insurance companies mid-policy can make a lot of sense if you have lost faith in your existing insurance provider because of a bad experience or if you have found coverage with another company that offers significant savings.
To make the change, you need to purchase insurance from another company and send a cancellation letter to your old company. Any credit owed to you minus any cancellation fees will be issued to you by the previous company.