Car insurance cancellation fees: how they (usually) work

Car insurance cancellation fees: how they (usually) work

If you don’t want car insurance anymore, you can cancel it early.

But to do that, you’ll usually have to pay a car insurance cancellation fee. The cost of cancelling car insurance depends on how long is left on your policy. And, depending on your situation, there can be a bunch of other costs and things to consider, too.

Here’s how it (usually) works.

This is about how car insurance cancellation fees usually work. But we don’t think the way they usually work is fair. 

That’s why we’re building a new, pay-monthly car insurance that you can cancel any time without having to pay a fee. 

Interested? You can sign up for the waitlist.

When do you pay car insurance cancellation fees?

If you want to cancel your car insurance, you need to get in touch with your insurer. That usually means a phone call, although some will let you do it online.

When you cancel your car insurance, you’ll have to pay a fee. But you’ll also get a refund for the months you haven’t yet used up. Except for the last two months of the policy. Insurers won’t usually refund this.

So, if you’ve paid for a year of car insurance up front, and you’ve got six months left till it’s time to renew, cancelling will mean you get refunded for four months of insurance, minus any cancellation fees.

You won’t normally get a refund if you’ve made a claim on the policy. And you won’t (usually) get a refund for any extras you pay for, like breakdown cover.

Cancelling your car insurance isn’t the same as not renewing your car insurance. That’s called “lapsing”, and there’s a big difference between the two. 

You don’t have to pay a cancellation fee if you let your policy lapse. You just have to let your insurer know you want to let your policy lapse – if it’s set up to auto-renew.

The cooling-off period

All car insurance policies have a minimum 14-day cooling-off period. This is the legal minimum, but some insurers will offer a longer one.

If you want to cancel during the 14-day cooling-off period, you won’t have to pay a cancellation fee.

Cancelling your insurance when you pay monthly

You can also cancel your car insurance if you pay monthly. But you’ll usually end up paying even more in fees.

That’s because most pay-monthly car insurance policies don’t really work the way they seem to work. It doesn’t mean you pay for one month’s insurance at a time.

Think of it more like a loan. Your insurer covers you for a whole year, and then you pay it back in gradual instalments.

That’s why, if you add up each monthly payment, the total cost will be higher than if you’d paid for the whole thing up front. It’s a kind of interest, just like with any other loan.

That all sounds a bit pedantic. But it’s important to understand it when you want to cancel a car insurance that you pay for month-to-month. 

Because, when you cancel, the cancellation fees will be based on the number of months you have left on your insurance policy – just like it would if you’re paying for the whole thing up front. So you’ll have to pay the same cancellation fee you would if you didn’t pay for your car insurance month-to-month.

On top of all that, you’ll usually have to pay an extra fee, which is a percentage of the total price of the policy.

(Again, this isn’t how our pay-monthly car insurance works. It’s not a loan. That’s why you don’t have to pay any fees to cancel.)

And you still have to let your insurer know that you want to cancel. Cancelling your direct debit won’t cancel your car insurance. 

If you cancel your direct debit without cancelling your policy, your insurer could cancel your policy for non-payment, and that could make it harder to get insurance in future.

How cancelling your policy affects your car insurance later on

With most car insurance policies, if you cancel your car insurance policy, you’ll probably lose your no-claims bonus. 

So, if there’s not long left on your policy, and depending on how big your no-claims bonus is likely to be, it might make more sense to hold off on cancelling, and just let it run out instead. You don’t usually get a refund for the last two months of the policy anyway.

Other than that, cancelling your car insurance shouldn’t make a difference when you try to buy a policy in the future.

Selling a car and cancelling your car insurance: when it makes sense to pay the cancellation fees

If you’re not replacing the car

If you sell your car, and you decide not to replace it, you should cancel your car insurance straight away, and get as much of a refund as possible.

But if you’ve sold your car with just a month of two left on your policy, the cancellation fee could well be higher than the refund you’d get. So it’s tempting to just let the policy lapse.

But, if you let the policy run, there’s a chance the new owner could crash the car and try to  claim on your insurance policy, which would technically still be running. 

And that could cause a lot of headaches. Especially if your insurer cancels your policy because you didn’t tell them you’d sold the car.

So, if you want to be on the safe side, it’s always better to cancel if you’re not replacing the car.

If you are replacing the car

If you replace the car, you don’t have to pay the cancellation fee. Instead, you can switch your current policy over to your new car.

There might be an admin fee for doing this.

And when you change your car, it could change the price of your car insurance. So if you’re upgrading, you might end up with a higher premium after you switch.

Even with the admin fee, it’s usually cheaper to switch over your insurance rather than cancelling it and buying a new policy.

But this isn’t always the case.

It’s worth doing the maths and making sure before you go ahead and switch your insurance to the new vehicle.

Bear in mind that you’ll lose your no-claims bonus if you cancel your car insurance, so take that into account when you’re deciding whether to cancel or switch. Having a no-claims bonus can make a big difference to the price of your car insurance later on.

If your car gets stolen

If your car gets stolen, you should let your insurer know.

It will go down on your record as a loss, which isn’t great. But the alternative is worse.

Stolen cars are much more likely to be crashed. And if there is a crash, the person who stole it could try to claim on your insurance, which would technically still be running.

They (probably) wouldn’t be successful, but it would mean your insurer could cancel your insurance policy.