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Switching Auto Insurance: What You Need to Know


Let's say you have current auto insurance with Company A and decide the current monthly price for the coverage you are getting isn't quite adding up anymore. The best first step you can take in this unfamiliar process is to contact your current company and find out exactly what you are paying for and what coverages they are giving you.

How do I switch my auto insurance?

If you decide that it's time to change your auto insurance to a new company, don't hold back!

Let's say you have current auto insurance with Company A and decide the current monthly price for the coverage you are getting isn't quite adding up anymore. The best first step you can take in this unfamiliar process is to contact your current company and find out exactly what you are paying for and what coverages they are giving you. Usually, this can be found on your "Application" or "Declarations Page" that can be located via the customer service department, or maybe online in a portal. As you shop your insurance, have an agent explain these coverages to you, so you understand what the different line items on your policy mean.

After you have found the company that you are ready to make a switch to, the next part is easy!

Look for the Effective date on your current policy, typically this is at the top of the documents mentioned above. You will want to tell the new company to begin the policy on that same date, while also calling your current company's customer service department, and asking them to cancel your old policy for the same date that the new policy begins.

Example: If you set up your new policy for May 4th (05/04), you would also want to cancel your current policy for 05/04 to ensure there is no lapse in coverage.

Fun Fact: The old myth that you have to wait until the end of your auto insurance term to make a change to a new company is incorrect. In most states, any time not used on your current policy will not be charged to you once you cancel it. You only pay for the days that you were covered. Ask your agent to be sure that is the case where you live.

Last step: Sit back and relax! You just finished changing your auto insurance.

Can you switch insurance providers in the middle of the year?

Great question! Yes, you can change your auto or home insurance providers in the middle of the year. The time that you are covered by a policy is known as the "policy term".

Most state laws require that insurance companies also give you a pro-rated refund for any days of insurance that you are no longer using on the policy you had with them. However, some states, like North Carolina, are what's called a short-rate state. Keep reading the next section to learn more about short-rate states. That being said, this is a great reminder to reach out to your insurance provider before canceling to learn about their policy on this.

Here's an example that may help for traditional, "pro-rated" states.

Your policy runs from 05/04/2020 to 05/04/2021. You happen to find a new insurance company you would like to cover your vehicles, and the new policy begins on 11/04/2020, exactly halfway through the old policy term. If you had paid $500 in full for the old policy, they would have to refund you half of that, or $250, once you cancelled for premium unused. If you are paying monthly, they would just stop invoicing you after you cancel with them.

Will I be charged to switch?

The simple answer to this question for MOST states is no, you will not be charged to switch insurance companies.

As mentioned in our previous section though, some states charge you what is called a short rate. A state that is allowed to charge a short rate, means that if you were to cancel your insurance policy before the previously agreed expiration date, that company is allowed to withhold a percentage of your annual premium. This percentage can sometimes be listed as a table in the policy, giving different percentages based on when the request is made to cancel. (usually the earlier you try to cancel, the higher the percentage you'll owe). The idea behind short rate insurance policies allows the insurer to earn money on the policy even if the insured decided to leave them.

For example, if your auto insurance premium was $2,400 a year, and the short rate percentage the insurer has written on your policy is "retaining 75% for being canceled with 200 days left on your policy" you would receive a $600 refund, and the insurer would keep $1,800.

If this was a pro-rated state like Oklahoma or Texas and you had paid the same $2,400 premium, you would have $1,315 refunded to you. Why? These states are only allowed to charge you for the days used. In this case, 165 days out of the 365 days on the policy used, would leave you with 200 days remaining. The way this can be calculated is to find the daily insurance rate you pay ($2,400/365), and multiply it by the number of days that have not passed yet (200). $6.58 daily rate x 200 days = $1,316 not used on the policy, refunded to the customer.

The main point is, always make sure to check the term length of your policy (how many days it lasts), and if you have a short-rate or pro-rated refund agreement for your insurance policies.

Does switching negatively impact me?

Another good question! If you are thinking about making the switch to a new insurance provider but are concerned whether or not this would negatively impact your insurance rates in the future, don't worry! As long as you are not making a change more than once a year, I think you are in the safe zone.

The most important thing to keep in mind when switching companies is the liability coverage you are being offered, the deductibles, and the insurance companies' Am Best or DemoTech rating (companies that provide credit ratings and financial data about other companies). As long as these things fall in line with your needs, and the price is better, I would go ahead and feel comfortable making the switch.

With that being said, similar to how your credit score works, insurance companies also having rating factors on their premium based on how long you were with your previous company. (You might not be helping your credit score if you are applying for a new card every 3 months)

Similarly, if you find yourself changing companies every 6 months to a year and begin to have trouble finding better rates, your best bet is to build some continued insurance history with the same company, to show future providers you have the potential to be a long-lasting loyal client.

How often do people switch home and auto insurance?

I would say it is best practice to review your policy at least once a year. Look for any changes to coverages and any difference in premium. If you are not comfortable with the renewal rate, consider comparing the same coverages with quotes from other providers.

Most home insurance policies run on an annual term, meaning they are in effect one year from the day it begins. Auto insurance, however, can either be 6-month policies or 12-month policies. When you find the opportunity, try to set yourself up with 12-month policies for both, so that you know your rates may change on the same date every year and you can monitor your home and auto policies together!

Article written by: Agent: Shar Merchant

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