How to Switch Insurance Companies - Don’t Just Let Your Policy Lapse

Whether you have been with the same auto insurance company for years, or you just signed on with them in the current year, you have the right to change to a different insurance company at any time (usually) without penalty.  There are many reasons to switch car insurance companies. You might be unhappy with the service that your present company provides, or perhaps you've simply found another company willing to offer you the same level of coverage for considerably less money. Nowadays, performing a regular car insurance rate check-up and investigating your options has never been easier. When you decide to switch your auto insurance to another company, you'll find that it's fairly simple to do so.

Suppose, for example, you see an ad for one of those online insurance sites that says you can save a lot of money if you just spend 15 minutes online to get a quote.  Okay, you say; I’ll do that.  So you get a quote (for the exact same coverages and deductibles you have now, of course, so you can compare apples to apples), and what do you know?  The premium is $150 lower per year than you are currently paying!  You check out the company on A.M. Best, and it seems financially sound.  You’ve even heard of them.   Seems like a no-brainer.  You give the new guys a try, and with your new policy in place, you’re all set.  When your monthly premium bill comes for the old policy, you simply toss it.  You don’t need that policy any more, so why pay the bill?  You’ll just let it lapse.  Uh oh!  Not a good move.

If you let your policy lapse without letting the insurance company know you are canceling the policy, it can have big, long-term consequences.  Missed payments and a lapse in coverage can lower your credit rating significantly, making it more expensive to get car insurance in the future.  A lapse also suggests callousness of the policyholder, and that can result in the conclusion that the policyholder or applicant for insurance is irresponsible.  Insurance companies read that as “frequent claim-filer” and they will be reluctant to offer you a policy if they think it will hurt their bottom line.

You’d be wise to heed these tips:

•    It is important to always have a new policy in place before canceling your old auto insurance coverage. You don't want to have a lapse in car insurance for even one day. Your new company will be able to time the onset of your new policy to coincide with the cancellation of your old coverage.  All standard auto insurance policies contain a provision giving you the right to cancel your policy at any time, once proper notice is given to the insurance company.

•    You don't need to wait until renewal time to cancel your policy. However, cancellation before a policy has renewed makes the most sense. That way, you don't have to worry about recovering the unused portion of your paid premium. But if you choose to cancel in the middle of a cycle, the company will prorate your latest premium payment up to the cancellation date and return the remainder to you.

•    Never ignore your car insurance bill.  Driving without insurance is often against the law and you will be personally liable if you have an accident.  And, again, it will have a significant negative effect on your credit rating.  Some car insurance companies may charge a special "short rate" cancellation penalty if you cancel in the middle of a policy term, so be sure to ask before you switch. If they do charge a penalty, you'll need to decide if the better rate outweighs the fee you'll have to pay. 

•    Make sure to inform your insurance company in writing that you are canceling your policy. Generally, all you need to do to cancel your auto insurance policy is to send them a letter, specifying the date you want the policy canceled.  Don't just walk away from your old policy without formally canceling it.  If you do, the car insurance company will probably terminate the policy for failure to pay, which can hurt your ability to get a new policy.

To sum it up, do reassess your auto insurance needs and do shop for rates and possibly better service every couple of years. If you decide to switch companies, be sure to let the old company know in writing and don’t terminate your coverage until the new policy is in place.