It's important to have insurance policies in place on homes, vehicles, and other valuable assets. It's also a good idea to shop around regularly for insurance. After all, no one wants to pay more for car insurance or homeowners insurance than they have to -- and sometimes, coverage options change or a policyholder's needs change.
When switching insurance, or when a policyholder no longer needs coverage any more -- say because they sold a covered home or vehicle -- it's important to cancel the policy once the protection is no longer necessary. But what happens if the policyholder forgets?
Premiums could continue to be collected
When a policyholder forgets to cancel insurance, the insurance company often has no way of knowing the policy won't be needed any more. As a result, the company will keep charging premiums. Consumers could get a bill for their coverage or, if they have set up automatic payments of monthly premiums, the money could keep coming out of their account.
For those who pay annually, the insurer won't know to send any money back, so it'll keep the premiums that have been sent in already, unless or until the policyholder takes action to report the cancellation and ask for part of the money back for the portion of the year when coverage is no longer needed.
Refunds can sometimes be issued based on when the policy should have been canceled
It makes little sense to pay for homeowners insurance coverage on a sold home, and it also makes little sense for someone to have double insurance coverage in place. As a result, in some cases, it is possible to get refunded effective on the date the property was sold or new coverage was obtained.
To do this, it's usually necessary to contact the insurer, let the company know exactly when the coverage should have ended, and provide proof of sale of the asset or proof that a new policy was put in place.
The insurer's policy will dictate whether a policyholder gets all of their money back that was collected after the insurance should no longer have been in effect. And it's generally more likely that insurers will allow a back-dated refund in situations where the asset was sold, rather than when a consumer simply switched insurance companies. But ultimately, it comes down to what the insurer says and what state law requires.
Although some insurers do provide refunds, that is not the case in every situation. And state law doesn't always require that an insurer refund all the premiums collected after the date the cancellation should have become effective.
Depending on the local rules and the insurer's policy, sometimes a consumer may only get back premiums paid within a short time -- such as the previous 30 days -- even if the policy should have been canceled weeks or months before.
Be proactive so you don't lose out
It can be disappointing to find out that premiums paid for a policy that should have been canceled won't all be returned. Aim to avoid this by letting an insurance company know exactly when coverage needs to end before that end date occurs. By taking action in advance, policyholders can ensure they never pay for insurance coverage they don't really need -- and can use their money for more fun things instead.
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FAQs
Premiums could continue to be collected
What happens if you forget to cancel home insurance after selling? ›
Homeowners Insurance and Selling Your Home
If you sell your home, your insurance coverage will remain in effect until the final payoff is sent in by the mortgage company. Any excess escrowed insurance money will be paid back to you.
Is there a penalty for cancelling an insurance policy? ›
Canceling your policy before your renewal date may trigger early cancellation fees. Depending on your provider and other factors, you may be charged either a flat or short-rate fee.
What happens if you let an insurance policy lapse? ›
Life insurance policies often have a grace period after a missed payment where the policy is still in force or at least offers some limited benefit. But once grace periods have passed and possible cash value is used up, a lapsed policy will terminate and the life insurance benefits will be gone.
Is there a grace period after cancelling insurance? ›
You'll usually have 10 to 20 days between the date of the cancellation notice and the date you are no longer covered. The exact amount of time differs by state. After that, your insurance will officially lapse and you'll no longer be able to drive your car legally.
What happens if you don't cancel your insurance? ›
Premiums could continue to be collected
As a result, the company will keep charging premiums. Consumers could get a bill for their coverage or, if they have set up automatic payments of monthly premiums, the money could keep coming out of their account.
What happens if a homeowner lets his or her insurance policy lapse? ›
A lapse in your coverage means that you are uninsured. It could be days or weeks, but the risk is the same; if something happens during the lapse period, you will not have any financial protection from homeowners insurance and will have to pay the expenses and losses out of pocket.
Can I cancel my insurance policy without penalty? ›
Generally speaking, the farther off your policy end date, the higher the penalty will be. Keep in mind that you can avoid the penalty by notifying your insurance representative in advance that you'd like to cancel your insurance on your policy renewal date or if you notify them before your policy comes into effect.
How long do you have to cancel an insurance policy? ›
Check the cooling off period – the standard cooling off period is 14 days, but some insurers may give you longer. Find your policy documents – when you contact your insurer about cancelling, they may ask for your policy number and renewal date.
Can you fight an insurance cancellation? ›
Internal appeal: If your claim is denied or your health insurance coverage canceled, you have the right to an internal appeal. You may ask your insurance company to conduct a full and fair review of its decision. If the case is urgent, your insurance company must speed up this process.
If it has only been a few days since your policy has lapsed, you can likely reinstate the policy without much hassle. If it has been several months or years, you might be able to reinstate your policy, but you will likely have to go through a reinstatement process with a new application.
What is the difference between insurance lapse and cancellation? ›
Lapse of coverage is distinctly different than cancellation of an insurance policy in that lapse generally does not require notice to you, the insured, whereas cancellation generally does.
Can I get my money back if my policy lapsed? ›
Insurance Lapse Meaning
In such cases, the policy lapses and all benefits and coverages offered are terminated if the due amount is not paid by the end of the grace period. Usually, there is no provision for a lapsed policy refund for insurance policies.
Is there a penalty for cancelling insurance? ›
If so, it is up to the insurer to set that fee, which is often taken out of the prorated refund. Cancellation fees can be a flat fee or a short-rate fee. With short-rate cancellations, the insurer will charge the policyholder a percentage of the unearned premium — usually 10 percent.
Can you backdate insurance cancellation? ›
Keep in mind that many insurance companies backdate policy cancellation if you don't cancel until after your new policy has taken effect. In other words if your new policy starts on May 1, but you don't cancel your old one until June 15, you could still be refunded according to a May 1 cancellation.
What is the grace period for insurance? ›
However, providing grace period in insurance is standard practice. In health insurance the days of grace in insurance are 30 days. In car insurance the days of grace in insurance are 10-30 days. In a life insurance policy, the days of grace is 30 days. .
When should a seller cancel homeowners insurance? ›
If you're buying a new home, you should set up your insurance to be effective from the time you close on the home. And if you're selling, you should make sure not to cancel your policy until after the closing.
Do you get a refund for Cancelling home insurance? ›
What is a homeowners insurance refund check? You may receive a refund check from your prior homeowners insurance company if you cancel your policy before it expires, reimbursing you for the coverage you already paid for. You may also receive a refund in the event your lender makes a payment to your old insurer.
Does home insurance cancel automatically? ›
Home insurance policies may be canceled or not renewed for a variety of reasons. This could be because you've fallen behind on payments or you misrepresented something about yourself or your home when initiating the policy. In addition, your policy may not be renewed if you live in a high-risk area.
