How and When to Switch Insurance Companies

June 19, 2012

You’ve shopped around and found a good insurance rate – now what? Here are a few things you should know before making the switch:

Selecting a New Insurance Company

The first step to changing insurance companies is to select a new company and policy. Start by obtaining quotes from a variety of companies. In order to make sure that you are comparing rates fairly, request quotes based on the same coverage options and levels. We will then compare your car insurance rate against over 30 insurance companies and save you the hassle of placing calls to various insurance providers.

Although a cheaper insurance rate is important, also be sure to look into the company’s reputation for customer service and claims handling. Ideally, you should look for a great rate combined with great service.

Cancelling the Existing Policy

When you cancel your old insurance policy, be sure to do so in writing even if your insurance company doesn’t require it. This ensures that you have record of the date of the requested cancellation so that there is no confusion as to the policy termination date.

Your new insurance policy should be in place before you cancel your old policy You want to avoid canceling your old policy and then finding out that either the new policy is not active yet or that the rate that you were quoted is not the premium you are receiving. This would be a stressful situation that can leave you scrambling to either find a new policy or stuck with a higher rate than you expected.

Your old policy can sometimes be cancelled retroactively, if you started a new policy but did not cancel the old one right away. Make sure to ask your insurance company what their policy is on retroactive cancellations. In most cases, you will need to provide a copy of the proof of insurance on the new policy showing the in-force date.

Prorating, Short-Rating and Avoiding Penalties

When you cancel your policy mid-term, your insurance company may either prorate or short-rate the refund that you receive. In a prorated situation, you will be refunded the total amount of the premium for the coverage you did not use. This means that if you had a twelve month policy but cancelled after nine months, you would receive three months worth of premium refunded to you.

In some cases the insurance company may refund based on what is known as a short-rate. This is when the insurance company would take a penalty out of your refund for early cancellation. Find out which system your insurance company will use prior to cancelling so that you can make your decision accordingly.

In some cases, the savings from your new policy may outweigh this penalty. If not, consider making the switch to your new policy on your renewal date instead of mid-term. If you decide to switch on renewal, make sure to notify your insurance company in writing that you will not be renewing. Otherwise, you may be subject to a non-payment policy cancellation on your record. In addition, switching on your renewal date will mean that you won’t have to deal with mid-term refunds. Take the time to figure out which of these options will save you the most money; if the new rate is significantly lower, it’s time to make the switch.

Additional Considerations

When you cancel your old policy and move to a new company, bear in-mind that you will not be able to take accident forgiveness with you. Make sure that the new company has given you a quote based on everything that is on your driving record. Generally, accident forgiveness does not transfer from one company to the next.

Keep in mind that when you change companies you will also lose any longevity discounts and multi-policy discounts. This may apply to rates for other policies you might have; will your homeowner’s insurance go up if it is insured with the same company? Take this into account when comparing new and existing policy rates, and if possible consider moving all of your existing policies to the new company as it may result in even greater savings.

It is your right to change auto insurance companies in order to receive a better rate, but bear in-mind that insurance companies do have the right to charge penalties for early cancellation depending on the circumstances. You can avoid any surprises by being aware of the full impact of cancelling before you make the change and ensure that the transition is a smooth one.