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It is a common habit for people to put things off. It is no different when it comes to responsibilities with their car insurance. Some may no longer need their car insurance. But, they will cancel it when they get around to it. Vehicle insurance is an important matter. It needs taking care of in a responsible way. That includes cancelling it when necessary. A common occurrence for this is when the vehicle’s sold.

Do I Need to Cancel My Insurance?


Your vehicle insurance is not cancelled automatically when you sell your vehicle. It is the driver that’s insured not the specific vehicle. But, the driver has to let the insurance company know what vehicles they are driving. A sold vehicle is no longer driven by the insured individual. So, the insurance company needs to know this. The purchaser of the vehicle will be responsible for getting their insurance.

Am I Allowed to Break My Insurance Contract?

There are some that believe that they are not allowed to cancel their insurance. It is because they have committed to a contract. A contract that normally runs for a year. Some may think that they have to pay out the full cost of the insurance contract. It is not the case. As soon as a driver does not need the insurance, it no longer has a purpose.

That doesn’t mean that there may not be some penalties. Which are part of the policy cancellation. Every insurance Company is different. They each have their own rules plus government regulated rules to follow. Some insurance companies may have a cancellation clause written into the insurance contract. Every insured person needs to know what is in their contract.

Don’t Cancel the Insurance Prematurely

Sometimes verbal commitments exist for a car purchase. Which is often the case with private sales. The owner of the vehicle still owns the vehicle until the transaction is complete. They still have the responsibility to keep it insured. It may be that the car isn’t driven until the sale is complete. Still, it may be necessary to keep the insurance on. Many drivers have extra insurance they are paying for. For example, comprehensive insurance. If the insurance is cancelled and the car gets damaged or stolen, there is no insurance on it.  Then the owner has the loss to deal with. Not the prospective buyer.

Car insurance cancellation shouldn’t take place until the signing of the bill of sale.  Then transfer ownership has taken place with the new owner. Now the insured can cancel their insurance. Before the new owner can drive the vehicle, they must get their insurance. Otherwise, they will not be able to register the ownership and get the new plates.

What is the Best Way to Cancel My Insurance?

There are several different ways that an insured may go about cancelling their insurance. There are some bad ways to go about this.

The first thing that is necessary is to contact the Insurance Company. If an individual uses a broker, then they can call their agent. They can verbally explain the reason for cancelling the insurance. But, the best way is to also follow this up with a written notification. Making sure all the details are there. Such as the policy number. Also, the exact date which the insurance is no longer needed. It is a good idea to also send this notification through registered mail. Then there is no risk that it will get lost in the mail system.

Another alternative is to get the insurance company or broker to confirm the cancellation. It can take place through email. Or, also through regular mail. This way there is a hard copy of cancellation information.

Some tend just to let their insurance expire. Meaning that they just stop making the payments. It is not a good approach. Non-payments can affect the standing with the Insurance Company. These non-payments can end up in the driving history. It can have a negative effect on getting insurance in the future. Or at the very least affect the premiums.

An insured needs to look at their insurance policy. They need to see if there are any penalties for cancelling the insurance. The Insurance Company has to determine if there is a refund applicable.

Determining Your Refund


Most insurance companies offer different payment options for vehicle insurance. Some offer monthly, quarterly or of course full payment options. When the insurance is no longer in effect, the refund will depend on the payments made. It may be that there was a payment made for the first four months. Then the insured cancels the insurance after two months. The insurance company may pro-rate how much of the payment was used. Then the balance is applicable for a refund. But, there may be some penalties added to this. It is because of the administrative costs of the cancellation. If there are then the insurance company is short-rating the refund.

The insurance company has the option to either pro-rate or short-rate the refund.  Depending on the circumstances. In many cases, they will simply give the refund. Often the insured is signing up for a new policy. The insurance companies don’t want to lose a customer. It is common that insurance is cancelled because of a change in vehicle ownership. It is better than cancelling because the driver wants to go to a competitor.

What Happens If I Don’t Cancel My Insurance?

waste of money

Not cancelling the insurance due to change of ownership is a waste of money. The new owner has to get their insurance. If the previous owner doesn’t cancel insurance, it is still void. It is because the previous owner is no longer driving that vehicle. At the same time, the previous owner does not want to be responsible in any way. There could be a lot of legalities if something went wrong.

The Importance of Shopping for Insurance

It is important to shop properly for insurance. Asking a lot of questions helps one to get the right information. Something as simple as knowing what the cancellation rules are is important.