Can I Just Stop Paying My Car Insurance
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In April of 2020, when much of the country was under lockdown, the number of vehicle miles traveled daily fell by 64 percent, reports KPMG. Today, many Americans are still working from home and driving fewer miles as a result.
The average cost for car insurance premiums has dropped from $1,544 in 2019 to $1,483 in 2020. You may wonder if there's a way to further reduce your car insurance costs, say by canceling your policy outright.
Read on to learn when insurance agents recommend canceling coverage and their favorite ways to save on car insurance costs.
Can You Cancel Your Car Insurance?
Can you cancel car insurance anytime? Yes. Should you? Not unless you have a very good reason. Every state except New Hampshire requires some amount of insurance coverage.
Going without insurance is illegal in 49 states, making it an inadvisable move. Insurance could pay your bills if you're hurt in an accident, pay for auto body repairs if your car was sideswiped in a parking lot, or help cover the cost of a new car if yours was totaled.
Here are the most common situations when you'd want to cancel car insurance and times when you might be tempted to drop your coverage but shouldn't.
When You Should
- Selling your car: The most common scenario for canceling auto insurance is when you sell your car and no longer own a vehicle, says Robert Yeiser, associate vice president of personal lines sales for Dairyland Insurance in Wisconsin.
- Changing insurance providers: If you've bought a new active car insurance policy, you can safely cancel your old one.
- Moving states: When moving, you'll need to purchase a policy for your new state and cancel coverage in the old state.
When You Shouldn't
- When you drive less: You might be driving less (or not at all), but as long as you own the car, you should keep it insured. Dropping coverage to just liability and comprehensive can save money while protecting from situations such as vandalism, theft, or fire, says Greg Martin, president of ThinkSafe Insurance in Brandon, FL.
- When lending the car to a relative: While canceling insurance might seem like a smart move in this situation, since you're no longer the driver, it's not recommended. Martin suggests you keep the car insured with you as the owner and your relative as the driver.
- When you know you'll need it again soon: The question of how to get car insurance becomes more expensive when there's a gap in coverage, even if it's just a couple of weeks. Sometimes it's worthwhile to keep a policy when you're in between cars to avoid the financial penalties that come with canceling a plan than buying coverage shortly thereafter.
How to Avoid Penalties When You Cancel Your Car Insurance
Some insurers charge a fee for canceling before the term ends. Others require a cancellation letter or a notice period before you terminate. Call the insurance company before canceling or letting it lapse; they can walk you through the process and any fees associated with early termination, says Yeiser.
Some insurers use what's known as a short rate, which weights the beginning of the coverage period higher than the end, Martin explains. While you might expect to receive half of your premium back if you paid upfront and canceled after six months, you'd actually get less back if your carrier uses short rate coverage. Check the policy's fine print to see if this applies to you.
Canceling insurance while your car is still registered can cost you. Some states, including New York, "[fine you] by the day…for every day you have a vehicle that's registered and not insured," says Yeiser. Insurers report to the state each night, Yeiser explains, so the DMV (department of motor vehicles) will catch on pretty quickly. Surrender your plates, then cancel insurance to avoid fines.
What Should You Do Before You Cancel Your Insurance
Whether you're moving states or simply found a better rate, you'll want to purchase your new policy before canceling the old one to avoid a coverage lapse, which increases rates.
If you're canceling your coverage because you're no longer a driver, return your plates to your state's DMV, then cancel your policy.
Don't stop paying premiums and assume this cancels your policy. "They will send you to collections, and the collections company will report it," says Earl Jones, a Farmers insurance agent. You'll then likely pay more the next time you need car insurance.
Pro Tip
If you're thinking of canceling car insurance, call your insurance agent first. They can walk you through alternatives and discuss cancellation fees to help you understand your options.
What to Do if You Still Owe Money
If your policy lapsed due to nonpayment or paid in installments, you might owe money after canceling coverage.
If there's a claim on your policy that exceeds coverage amounts, your old insurer could bill you, says Jones. For example, if you caused $7,000 worth of property damage but had $5,000 worth of coverage, you'd be on the hook for $2,000.
Switching Your Car Insurance After an Accident
There's good news and bad news when it comes to switching car insurance after accident claims. The bad news is carriers use the same underwriting exchange. You can't hide your driving record to obtain a better rate, Yeiser explains.
The good news is, there's no reason to stay with the insurer who covered the accident if they're not the best fit for your needs. Shop around. Work with a local insurance agent, says Yeiser. They'll represent several carriers and can comparison shop for you to obtain the best rates.
Auto insurers typically use a three year look-back period for accidents, so when the accident ages out of the look-back period, you'll no longer be penalized.
Alternatives to Cancelling Your Car Insurance
Car insurance is more than peace of mind, it's protection. If you plan to drive, even if it's just occasionally, we don't recommend you go without some level of coverage.
However, if you can't afford your premium, some alternatives can lower your out-of-pocket costs. Here are three to consider.
Reducing Your Coverage
If you carry more insurance than your state requires, you can reduce coverage to save money.
If you drive an older vehicle that you own outright, you could drop collision coverage, said Martin. Collision coverers, at most, the value of the car minus your deductible. Martin recommends you check the car's value using Kelley Blue Book, then compare the cost of collision coverage to the car's value and your timeline to replace the car to determine the break-even point.
If you lease a car, check your loan terms before reducing coverage. Lenders often require coverage beyond the state's minimums, so this may limit your ability to make policy changes, says Yeiser.
Negotiating with Your Insurance Company
Insurance providers each use their own pricing formula, so shop around. Both Martin and Jones recommend you also review your payment structure and insurance discounts to seek additional savings.
Companies give discounts for all sorts of things, from homeownership to bundling policies (when a customer buys auto and home or renters insurance from the company), to good grades (usually a GPA over 3.0, says Jones), so it never hurts to check.
"Paid in full discounts are common," says Yeiser. If you can afford to pay in full upfront, you'll save money.
If money is tight, consider a monthly automatic payment plan that spreads payments over 12 months, says Yeiser.
Non-Owner Car Insurance
Non-owner car insurance is marketed to business travelers and those who borrow cars from family or friends. This sometimes works for frequent business travelers who rent cars from different companies, but it's rarely recommended because "the terms and conditions usually state you cannot have regular access to the vehicle," says Jones. Thus, cars that drivers are most likely to borrow, such as a roommate's, partner's, or parent's, tend to be excluded from coverage.
Can I Just Stop Paying My Car Insurance
Source: https://time.com/nextadvisor/insurance/car/can-you-cancel-your-car-insurance/