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How do I cancel my car insurance policy?

Two toy cars in an accident, denoting car insurance

Decided to sell your car? Maybe your car’s been stolen or written off, and you’re not ready to buy a replacement? There could be a number of reasons why you’d want or need to cancel your car insurance policy.

How you then go about cancelling your cover, and whether you’ll lose out financially as a result, depends largely on when you plan to do it and what your insurer’s terms and conditions are.

Do you really need to cancel?

If you’re selling your car and buying a new model, you may not need to cancel. Most insurers will allow you to update your policy to cover the new vehicle. Although your premiums for the remaining months the policy is in effect may change to reflect the new car’s risk rating. But it’s unlikely that your insurer will be unwilling to cover your new motor.

You may have to pay a charge for making an amendment to a policy which is currently in effect. This varies from company to company, but the details of the fee should be set out in your policy booklet.

In most cases, however, the cost of amending a policy is less than cancellation. If your insurer raises prices by a large amount for your new car, it could be worth comparing quotes from other insurers. It’s possible that you could save money by cancelling your policy and moving to a new insurer, even once the cancellation charge is taken into account.

Cancelling at the start of the policy

UK insurance rules state that consumers have a 14-day ‘cooling-off’ period when they buy most kinds of cover. This means that, if you want to end a policy within two weeks of receiving your documentation, you should receive a more-or-less full refund of your premiums. But you may have to pay an administration fee, which is typically less than a full cancellation charge, as well as the cost of however many days you were covered for.

So if your policy hasn’t come into effect when you cancel, you should only have to pay the administration charge. You won’t be able to cancel in this way if you’ve made any claims within the cooling-off period.

Cancellation after the cooling-off period

Once the 14-day cooling-off period has passed, the financial penalties for cancelling your policy increase sharply. You’ll be charged a cancellation fee, and the amount you’re refunded for the unused premiums will be limited. For example, if you cancel with just two months or less left to run, you may be entitled to no refund. In a case such as this, it may not be worth cancelling the policy at all, as doing so will incur a cancellation charge.

On the other hand, if you cancel your car insurance as early as the fourth month, you may only get half of your annual premium back.

It’s very rare that customers are given a full pro-rata refund. Insurers say that they would charge much higher rates if they knew customers were only going to keep their policies for a short period. This is why so much of the premiums are held back and not refunded. Check your insurer’s policy booklet to see what their fees are before you cancel.

If you don’t want to renew your cover

A woman in her car waving, as she will cancel her car insurance

It may be that you simply want to stop your policy being automatically renewed when the year is up. Perhaps you’ve found cheaper cover elsewhere. Most insurers will now extend your cover for a further year, possibly at a higher rate, unless you expressly tell them not to.

If you don’t want to renew, it’s not enough simply to cancel your direct debit: you have to tell your insurer, either by phone or in writing. But you won’t face any fees for this, provided you cancel before the new policy comes into effect.

Consequences of cancelling

If you end your policy before the year’s up, you will miss out on the no-claims bonus for that period. If you have breakdown cover or other protection included with your car insurance, that’ll also come to an end — and you may not get any refund for this.

How to cancel the policy

If you do want to go ahead and cancel, you need to contact your insurer to tell them, and return your Certificate of Motor Insurance. You may also need to sign and return a declaration that you want the cancellation to go ahead. In most cases, the cancellation will only take effect once the signed declaration has been received by your insurer. You’ll then get a letter to confirm the policy has been cancelled.

What to do if you disagree with the charges

As you can see, the potential penalties for cancelling early can be quite significant. If you think they’re unfairly high — or if you have to cancel because of what you think is a mistake on the insurer’s part — you can complain to the company directly. Ask for an address for customer services, and write giving clear details of your case — such as what happened, when, and why you think you have been unfairly charged.

Even if fees are laid out in the policy booklet, you may be able to challenge them. Keep a record of anyone you speak to, and of the letters you send. If you use Special Delivery, you’ll have proof they’ve been received. If the company doesn’t deal with your complaint to your satisfaction, you can take your case to the Financial Ombudsman Service at no cost.

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