Car insurance policies typically last 12 months, with most people paying upfront for that cover. But sometimes we may want to cancel policies before they expire. Maybe we’ve sold our vehicle or found a better car insurance deal elsewhere. But if this is the case, can you get a refund?
Whether you’ll be refunded after cancellation and how much money you’ll receive depends on how long ago you took out the policy and if you’ve made a claim.
By law, all car insurance policies have a 14-day cooling off period. The cooling off period starts either from the date the policy begins or when you receive your policy documents - whichever is later.
During these two weeks, you can cancel the policy for any reason, no questions asked. You’ll be refunded any premiums you’ve already paid, although the insurer may keep back a small amount to cover the days you were insured or withhold an administrative fee. These administrative fees can be quite high but are perfectly legal.
Additionally, if you made a claim during those 14 days, the insurer can deduct from your refund the sum it paid out on the claim.
If you decide to cancel outside of the cooling off period, you may also be entitled to a refund of some of the premiums you’ve paid. Frequently, the insurer deducts a pro-rata amount for the time you’ve been covered and an administrative fee.
So if you cancel the policy after three months, you’ll be refunded for nine months. However, insurers’ policies vary. Many insurers won’t refund the last two months of cover. A claim may also make you ineligible for a refund.
If you pay for your car insurance monthly, you may see your latest payment returned to you when you cancel. However, insurers will usually apply a cancellation fee which may take up a large part of or even exceed any potential refund. You may find you don’t receive a refund but rather have to pay to get out of the policy.
If you pay monthly and have already made a claim on the policy, your insurer may require you to pay off the rest of the policy, usually in a lump sum, to cover that claim. In these cases, it makes more financial sense to stick with the policy and switch to a new provider when it lapses.
If your circumstances change during the policy term - for instance, if you move or buy a new car - you can usually amend your existing car insurance policy.
In some cases, this might lead to you being refunded for some of the annual premiums you’ve paid. This might happen if the change means your risk to the insurer has dropped: for example if you move to a neighbourhood with a lower rate of car theft or buy a cheaper car. On the other hand, you may be asked to pay more if the change makes you riskier to insure.