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How to Change Car Insurance Companies

In the current economic climate, many households across the U.S. are trying to cut costs to free up a few more dollars, and one of the easiest ways to do this is to review the amounts being paid out for insurance.

Auto insurance is relatively easy to obtain a quote for, especially with the availability of online services, yet many Americans do not make the effort of shopping around. Once with an insurer, many simply renew with the same company. However, according to one major survey, the incidence of people shopping online for auto insurance is increasing significantly year by year.1

Getting auto insurance quotes in days gone by involved a copious amount of telephone calls to brokers and companies in an effort to find the best quote. With the use of the internet, comparing premiums is not only much quicker, but it’s also easier to juggle the variables, such as the deductible and additional coverage, until the right balance between premium and coverage is reached.

There are several reasons why insurance can be found cheaper with an alternative provider. Many companies offer discounts to new customers because they know that many people do not switch once they have a policy. However, a change in circumstances can mean that your current insurer is no longer the best option. For example, racking up a few years of experience can mean you fall within the target audience for a regular insurer rather than a specialist firm or conversely, collecting points on your license can mean you would be better off with an insurer that offers cheaper deals for drivers classed as higher risk.

Of course, price is not the only reason to consider changing insurer. You might be disappointed with the level of customer service you receive, or you may wish to have your home and auto insurance with a single provider.

Whatever the reason you decide to switch, the most common time to change insurer is at the point of renewal. However, to ensure there is no gap in your coverage, it is important to plan in advance and ensure your new policy is ready to take effect the minute your old one expires.

Most insurers send out their renewal terms approximately 30 days before the policy is due to expire, but the accompanying paperwork can be misleading. Many carriers tell their policyholders that they have between 10 to 30 days to submit the new premium payment before the coverage is terminated. However, in reality, if an accident occurs prior to the premium being paid, you could face a wrangle to get the insurer to pay up. It is therefore a much better idea to decide prior to the expiry date whether you will be renewing or obtaining coverage elsewhere. You do not have to wait until renewal to change insurer; it can be done at any point during the policy year.

In order to change auto insurers, it is essential to check the fine print of your existing policy. Many providers stipulate a cancellation period and some even charge a fee. One well-documented study found that the typical costs that a driver faces just in switching auto insurance was in the region of $85.2 Even if you are very dissatisfied with your insurer, under no circumstances should you cancel your insurance without ensuring that you have another policy in place. Even if you do not plan on driving your car, you could be hit by an uninsured driver or be the victim of a hit and run while parked, and without your own coverage you could suffer substantial financial loss.

The actual procedure for canceling a policy varies between states. In some regions, the new carrier assumes responsibility for notifying the existing insurer that the policy is to be cancelled. However, in most cases it is the driver’s responsibility to cancel their existing coverage. Insurers are likely to want this confirmed in writing, with the possible return of the policy document as well as the exact date on which you wish your coverage to cease. It is possible to arrange a new policy with a future effective date and to avoid gaps in your insurance. It is best to organize this first before canceling your existing coverage.

It can be tempting to not bother to inform your existing insurer that you no longer need their policy, especially if there is only a short time period to run on the policy, and any refund is likely to be small. Although this may seem like the easiest option, it can cause problems in the longer term. Without any instructions to confirm that the policy is to be cancelled, the carrier may assume that you have simply failed to pay your premiums and make a note on your credit file accordingly. They may also decide to inform the state Department of Motor Vehicles that you have no insurance. While both of these situations can be corrected, it can be time consuming and difficult and mean that insurance is either difficult to obtain or more expensive while you go through this process.

Should you want your new policy to start straight away, the coverage can usually be issued immediately providing you are able to supply a copy of your driving license and the declaration page, as well as either the first installment or the whole premium, depending on the agreed method of payment.

If you decide to switch insurers part way through a policy year, it should be possible to receive a refund of the unexpired portion of the premium. In many states, insurers are bound by law to provide a pro rata refund providing the coverage is cancelled correctly. However, some carriers will insist on seeing proof of the new insurance before they issue a refund, whereas others will be willing to simply pay out.

Whether you ultimately decide to stay with your existing auto insurer or switch carriers, it is a good idea to visit comparison websites or conduct your own research to ensure you are getting the best deal possible. If you really want to stay with your existing provider even if they are more expensive, phoning them and asking if they can match a cheaper premium you have been quoted can bring surprising results.

  1. ComScore, The 2011 Online Auto Insurance Report, May 18, 2011.
  2. Honka, E, Quantifying Search and Switching Costs in the U.S. Auto Insurance Industry, October 3, 2010.