Car insurance refunds are nice, but how do they work? Knowing how your car insurance billing system works, and any fees that may apply to early policy termination, can help you make decisions, like when to switch your car insurance or when to drop coverage on a vehicle.
Car Insurance Refund if You Paid in Full
If everyone paid in full on their car insurance, billing would be easier to understand. Refunds can occur for many different reasons. The further in advance you have paid, the more likely you are to get a refund on you insurance premium if you cancel your policy. Common ways to become eligible for a refunded insurance premium if you paid in full include:
Canceling your car insurance policy mid-term Removing coverage from a vehicle Changing coverage or removing a vehicle Moving to a lower-risk area Removing a high-risk driver from your plan
Example: Jack paid for a full six months of car insurance on three vehicles. Three months later, he sold one of the vehicles. He will receive a refund for the three months of insurance he did not use on the sold vehicle.
Car Insurance Refund if You Pay Monthly
If you pay your insurance on a month-to-month basis, you have less money being paid toward the future. More than likely, any changes you make to your vehicle will come in the form of a credit toward your future billing. In other words, a refund is less likely and a credit will probably reduce your future payments instead of generating a refund. The best chance of getting a refund on your premium if you pay month-to-month is to cancel your car insurance policy mid-billing cycle. Example: John pays month-to-month on his car insurance. He makes a payment on the first of the month and decides to cancel his insurance on the 10th of the same month. John would be eligible for a small refund, because he just paid for an entire month and only needed 10 days of coverage (one-third the length of an average month).
Tips to Avoid Car Insurance Refund Problems
Cancel on your car insurance renewal date. Cancel on your monthly payment due date if you pay monthly. Make changes on your car insurance renewal date.
Using your renewal or payment date as the day to make changes leaves it so that you will not owe them any money and they will not owe you any money. Prior changes to your car insurance could make that statement untrue, but most of the time you will be all set if you stick with your renewal date.
