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How to cancel your car insurance
The first step is to tell your car insurer that you want to cancel. If you cancel car insurance during the 14-day cooling off period and before your policy has come into force, you will get a refund of any premium paid.
If the cover has started, the insurer can deduct an amount to cover any days when your car was insured, plus an admin fee.
If you cancel outside this period, your refund is likely to be proportionately smaller.
What to expect when cancelling car insurance
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. How much will 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 won't be refunded for any add-ons, such as breakdown cover. You will crucially also miss out on any no claims discount for that period.
Cancelling insurance during the cooling-off 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?
What is the cooling-off period?
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.
Other fees charged
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. This 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).
Can I cancel if I'm selling my car?
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. Failure to cancel could also result in a claim against your insurance if the new owner has an accident.
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. This could still work out a lot cheaper than cancelling and taking out a new policy. But not always. Do your sums before you decide.
Can I cancel my car insurance if I've made a claim?
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.
Will I get a refund if I cancel my insurance?
You might think that if you’ve got six months left on your policy, you’d be due six months-worth of premiums back. But you’d be disappointed.
Practice varies, but insurers usually don’t refund the final two months of premiums. And, provided you've not made any claims, hanging on to your policy until it ends – so long as you still own the car insured – 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 because insurers fund their admin costs with the early months’ premiums. They also have to update with Motor Insurance Database with your cancellation.
Can I cancel if I pay for my car insurance monthly?
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. You also risk having a claim against your policy even if you have sold your car.
And even though paying monthly means you're effectively paying for your insurance as you use it, your insurer won’t see it that way. When you cancel, you could still find you’re 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...
How can I complain about my car insurance company?
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. 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 have eight weeks to makes its final decision. If it doesn't or if you're not happy with the response, you can take your complaint to the Financial Ombudsman Service. It 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.”
Don't auto renew
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 reward loyalty.
Sometimes, it’s the insurer that decides to cancel the policy. This is usually as a 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. Under Continuous Insurance Enforcement rules, even having your car parked on the road without insurance could result in a fine.