Key Factors to Consider Before Canceling an Insurance Policy

People cancel and change insurance providers for several reasons. One of the main reasons that an insurance policy is canceled is due to poor customer service, such as an agent is hard to contact. Often, customers switch companies because they’re looking for cheaper premiums, while others have encountered negative experiences in filing claims. Regardless of the reasons for canceling or switching providers, it’s important to do it the right way. Here are four factors to consider before making a final decision.

Whether or Not to Tell Your Insurance Agent

When you cancel and change insurance providers, you can either contact your agent or simply stop making monthly premium payments. However, it’s highly recommended to officially call him or her and set up an appointment. Of course, your agent will ask the reasons why, so be prepared to answer questions. Agents also tell their customers the correct way to cancel a policy, which is another reason to meet with them.

On the other hand, if you decide to not inform your agent and want to just stop making monthly payments, your policy will terminate automatically or lapse. If you choose this option, be forewarned this is not the wise way to cancel a policy. Think about how it can negatively affect your record by making it difficult when applying for new insurance.

Potential Penalties

Before you cancel an old insurance policy, check to see if you have any penalties, which is another reason for talking with your insurance agent before canceling a policy. If you do have penalties, you certainly don’t want to have to worry about paying more for your new policy because of penalties from your old one.

The Gap Between Your Old and New Insurance

Be sure your new policy is effective before canceling the old one, so you don’t have a gap in coverage. A gap in auto insurance coverage is especially risky. Besides the possibility of getting into an accident and not having coverage, insurance companies tend to give lower rates to drivers with continuous insurance.

A “Free Look” Period

Ask if an insurance company offers a “free look” period. This is a period of time that allows customers to have full coverage while reviewing a policy. After studying the conditions and terms of a policy, sometimes people decide it doesn’t fit their needs. When this is the case, the contract is canceled, and they are fully refunded for paid premiums without having to pay penalties.

Other Considerations and Warnings

• If you’re canceling a health or life insurance policy, consider that you’ve aged since buying your initial policy. What’s more, your health condition has also probably changed. Therefore, expect the premiums on your next insurance policy to be higher.
• Don’t just assume your old policy has been canceled. That’s why you need to contact the agent at your old insurance company to confirm the cancellation. If it hasn’t been canceled, you could still be billed. Don’t depend on word-of-mouth. Instead, ask for a confirmation letter.
• Even if your insurance company does not require you to cancel your old policy in writing, it’s still best to give a written cancellation to avoid confusion.
• Get quotes from a wide range of insurance companies, making sure they’re based on the same coverage as your old policy.
• If you’ve paid for your old auto insurance policy upfront, you’re entitled to a refund for unused coverage.

The Bottom Line

Before deciding to cancel a policy, be sure it’s necessary, or that you can replace your old one with a better policy. Instead of rushing out to get a new policy, take time to list the pros and cons for changing providers. Additionally, do your “homework” by comparing what different providers offer. Unfortunately, often people change insurance companies only to discover later that the new policy provides the very same coverage as their old one.

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