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Originally published March 21st 2016
Tell your insurer that you want to cancel. If you cancel during the 14-day cooling off period, you will get a refund of any premium paid, although the insurer can deduct an amount to cover any days when you were insured, plus an admin fee. If you cancel outside this period, your refund is likely to be proportionately smaller.
What about when you want to sell your car but you’re only half way through your car insurance policy's year-long cover? Can you get your money back if you paid for your cover up front?
The good news is yes, you can cancel.
The bad news is your insurer will hit you with various cancellation fees, and these can vary massively depending upon who you're insured with, how much you pay, and how long you've had the policy before you end it.
Not only that, but cancelling early means you'll lose and won't be refunded for any add-ons, such as breakdown cover, and miss out on any no claims discount for that period.
What if you cancel during the cooling-off period – the time immediately after purchase where you are entitled to change your mind about buying the policy? Surely you won’t have to pay a fee?
By law, insurers must offer a minimum 14-day cooling-off period, during which you are entitled to cancel the policy.
The cooling-off period starts when you receive your documents, or when the cover begins, whichever is the later. But the insurer can still apply a fee to cover the cost of administration.
It isn’t usually as high as the fee if you cancel after the cooling-off period, but it can still sting.
Some insurers allow longer cooling-off periods, so it’s worth checking the details of your policy. (And if you buy a protection policy, such as life insurance, the cooling off period is 30 days.)
And it's worth noting that some insurers may impose another fee for setting up the cover and this is usually deducted as a percentage of any remaining cover, which can add up to a hefty sum.
If you think you're being overcharged, you need to make a complaint to your insurer (more on that below).
So much for fees. What about a refund of premiums?
If you're selling your car and not replacing it you should cancel your cover immediately as you no longer own the car and there's no point paying for cover you don't need.
If you're going to replace your old car most insurers will update the policy to cover the new vehicle, meaning you don't have to cancel and take out a new policy.
You will be charged for changing the policy, and you may have to pay more for cover to reflect any added risk associated with your new car, but this could still work out a lot cheaper than cancelling and taking out a new policy, so do your sums before you decide.
You should be able to cancel your car insurance even if you've made a claim on the policy, but you will be required to pay the whole policy price in full.
This means you won't get any refund if you've paid up front, and if you pay monthly you'll have to pay for any remaining cover as one lump sum.
You might expect to get something close to a pro rata refund of any premiums, less any cancellation charge. So if you’ve got six months left on your policy, you’d think you’d be due six months-worth of premiums back.
You’d probably be disappointed. Practice varies, but insurers usually don’t refund the last two months of premiums, so if you are close to renewal, it’s probably worth seeing out the remaining months before you switch to a better deal elsewhere.
And, provided you've not made any claims, hanging on to your policy until it ends will also ensure you get the no claims bonus for that year.
If you cancel half-way through the year, you’ll probably only get four months of premiums back. This is all because insurers fund their admin costs with the early months’ premiums.
With car insurance, many people choose to spread the cost by paying monthly by direct debit.
But take note: simply cancelling your direct debit doesn’t mean you’ve cancelled the policy.
Tell your insurer you want to cancel and get confirmation from them, otherwise they might chase you for unpaid premiums.
And even though paying monthly means you're effectively paying for your insurance as you use it, when you cancel you could still find your hit not only with the standard cancellation fee, but also with another that's a percentage of the total policy price.
Again, if you think you're being overcharged for cancelling a policy, you need to make a complaint, here's how...
If your insurer does not offer any refund, or if it offers a lot less than a pro rata refund, it‘s worth making a complaint.
Contact the insurer and outline your complaint - you should be able to find details of its complaints procedure online - and keep records of any letters or emails you send, and the times of any phone calls you make, as well as the names of anyone you speak to.
Your insurer will then have eight weeks to respond, if it doesn't or if you're not happy with the response, you can take your complaint to the Financial Ombudsman Service, which takes a dim view of firms that penalise customers for exercising their cancellation rights.
It says: “It is important for the firm to have fair reasons for its approach to premium refunds – and for it to explain its approach clearly to the customer.”
It’s always worth taking a bit of time to work out the sums before you cancel any policy as it might be better to wait until the insurance is up for renewal.
You should also check whether your policy is automatically renewed every year. If it is, you need to interrupt the process so that you can move to a better deal – it’s always worth comparing quotes before renewal as insurers rarely, if ever, reward loyalty.
Sometimes, it’s the insurer that decides to cancel the policy. This is usually the result of a change that increases the likelihood of a claim, such as modifications to the car.
If the insurer cancels your policy, make sure you find another insurer immediately, and don’t drive the car again until you’ve got cover in place.