When you get that insurance renewal in the mail, it’s often a reminder to consider whether you could be paying less elsewhere. While renewal time is a great opportunity to shop for car insurance quotes and see what other companies have to offer, it’s not the only good time to consider your options. There can be some benefits to shopping for insurance mid-term, even with the potential penalties for early cancellation.
What Happens When You Cancel Early?
Many insurance companies charge a penalty for early cancellation. This system is called short-rating. It occurs when an insurance company requires you to pay for more of the policy term than you actually used as a sort of early cancellation penalty. This is a part of the insurance policy contract you agree to when you accept the policy, however many people aren’t aware of it until they try to cancel.
Not every insurance company uses a short-rating system, and short-rating usually only applies up until a certain point in the policy term after which you can cancel without penalty. It’s important to find out how your insurance policy handles cancellations before you cancel – in fact, it’s a good idea to find out before you even accept a policy.
Comparing the Costs
When deciding whether or not to cancel mid-term, the best thing to do is to look at the numbers side by side. How much would you pay for the remaining term on the current policy? How much would you pay in that same time period if you switched, including any cancellation penalties from the current company? Next, compare the premiums for the following term, when all fees and penalties are passed.
In many cases, if the new policy really does offer a much better car insurance rate, then switching mid-term is worth it, and this will usually be clear when you look at the overall savings through the rest of the policy term and in the next term to come. If the difference between those two numbers puts you out on top, then it’s well worth accepting the early termination penalty.
Other Things to Consider
There are a few other considerations that could affect the savings gained by switching mid-term. If your current company has accident forgiveness and you had an at-fault accident within the past six years, the new insurance company is likely to charge you for the accident. Be sure to mention it when obtaining comparison quotes, or you may find a surprise when you make the actual switch and the company discovers the accident.
It’s also important to remember that you will lose any longevity discount your current company is giving you. If you choose to return to that company later, you will have to earn it again. These things taken into consideration, however, if the numbers make sense, then there is no real reason to wait until renewal to switch to a new insurance company.
Of course, there are other reasons to look at switching insurance companies sooner rather than later. If you’re unhappy with the service you are receiving from your current carrier, then you should start shopping for insurance quotes right away. In the long run a company you have confidence in will mean more than a few dollars one way or the other.
When to switch insurance companies is a personal choice based on a few different factors, but the bottom line is that not only is switching mid-term not a bad idea, it’s often a good one. Taking the time to shop around and compare rates can be beneficial at any time, and often the cost of switching is well outweighed by the savings or the improvement in service – or both.