Car insurance is a legal requirement in all Canadian provinces. Apart from being a statutory obligation, it’s essential–life is too unpredictable to go without auto coverage. However, there are certain situations when you may consider cancelling your insurance.
Especially now that many Canadians are working from home and don’t use their car as often, or trying to find alternative ways to make ends meet during the financial crisis.
Should you cancel your car insurance? If so, when and how? How much will it cost? Let’s explore these questions below.
- You can cancel auto insurance at any time, but explore other options before you make the final call
- Confirm your cancellation in writing
- Cancelling midterm can cost fees
Should you cancel your car insurance?
The following are some valid reasons for cancelling auto insurance.
To get lower rates
If you can get lower-priced premiums by comparing quotes from other insurance providers, you can cancel your policy and start a new one. However, ensure the old and the new coverage overlap perfectly so you never drive without insurance.
If you sell your car
If you’re selling your car and aren’t buying a new one in the foreseeable future, you don’t need insurance and can simply cancel your policy. However, only cancel your auto insurance coverage once all the paperwork is processed; it may be harder to find a buyer if the car is uninsured.
Change in circumstances
If you’re dealing with a life event that affects your address such as a divorce or a move, you may have to cancel your auto insurance. The legal requirements and fine print may differ between provinces, but you are better served getting auto insurance from a provider in your area.
However, even if the reason is valid, consider all the variables before you make a decision.
You are still required to have auto insurance no matter what your circumstances. If you cancel your car insurance and then decide to drive – even a short distance – this can result in serious fines and possible jail time.
Also, if you need to get car insurance again at a later date you may have to make a deposit when you open a new policy. It may be less expensive to keep up with your payments or alter your existing coverage rather than risk penalties, deposit fees, and fines.
How to cancel your car insurance
If you decide to cancel your policy, ensure you follow the right steps to avoid running into any issues. Defaulting on payments may affect your credit and future premiums.
The exact process will depend on your provincial laws, though it will follow a similar pattern.
First, you need to read the fine print on your contract. Each insurer’s cancellation policy is unique and requires due diligence. You will also need to speak to the insurer to notify them about your decision.
Second, ask the insurance company if they have any specific requirements you need to follow. For example, if there is any cancellation fee, cancellation letter, or notice period.
Next, send the signed cancellation letter if necessary. The letter is mandatory in some provinces like Ontario.
Finally, you’ll get a notice of cancellation. As a precaution, request official written confirmation and keep a copy for your records.
How much does it cost to cancel car insurance?
Cancelling your policy mid-term may result in a penalty or charges. How much you pay will depend on factors like
- The time remaining on your policy term
- Any outstanding payments
- Non-refundable fees
- The insurer’s rating policy (short or pro-rating)
The charges will vary, usually between 2% and 7%. It will cost you less if you’re paid up and closer to your renewal date.
If you are wondering how to cancel car insurance without charges. The best solution is to wait until the end of the term. Insurance companies don’t typically charge policyholders unless they cancel midterm.
Can you cancel car insurance at any time?
The best time to cancel your contract is upon renewal.
That said, there shouldn’t be any legal repercussions if you cancel your contract correctly as outlined in the steps above. As mentioned before, you might incur cancellation fees if you terminate your policy early.
Does cancelling your car insurance hurt your credit score?
Handled correctly, cancellation shouldn’t hurt your credit score, but it does affect your future payments.
Your insurance history is a significant determinant for your premiums. A cancellation may reflect poorly on you, raising your premiums in the future.
Also, insurance providers may take a gap in your insurance coverage to mean your driving is rusty. In some cases, drivers with large time gaps in their coverage are considered high risk and attract higher rates.
In the worst-case scenario, some providers will deny you coverage if you have any previous lapses.
Alternatives to cancelling your car insurance
There are some alternatives you can pursue that won’t affect your future premiums. Some of them include.
- Getting family or friends to add you to their car insurance policy.
- Removing extras and add-ons and paying only for the mandatory coverage. Bear in mind that compulsory coverage differs by province, so you’ll have to determine the specific laws that apply where you live. For example, in Alberta, you are only mandated to get third-party liability and accident benefits. Ontario laws require third-party insurance, accident cover, property damage and uninsured automobile protection.
- You may also opt for bundled insurance or a different package. For example, some insurance companies allow you to combine your home and car insurance and offer a discount when you do so. Talk to your provider to explore this option.
Ultimately, cancelling your car insurance will depend on several variables. Weigh your options thoroughly and practise due diligence to avoid any issues. If you decide to go ahead with cancelling your car insurance, ensure you follow proper procedure to avoid fees or creating any gaps in your auto coverage.
The information provided herein is for general informational purposes only. It is not intended and should not be construed to constitute legal or financial advice.
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