Cancelling your car insurance when you no longer need it

When it comes to car insurance, I usually pay the premiums in full because it saves me money on interest. However 7 months into the year, I no longer needed the insurance cover because I was moving abroad. So I knew I had to contact the insurance company to get any refunds that I was due but little did I know how difficult that would prove to be.

First of all, let’s have a look at some facts when it comes to car insurance cancellation. You are usually given a 14 day cooling period when you start your policy which means that if you decide to cancel within those 14 days, you will only be charged for the days that you were insured and get a refund for all other days. For example, if you call your insurance company and cancel the policy on day 3, you will be charged 3 days’ car insurance cover and the rest of the money will be credited back to you.

After the cooling off period, you are charged Short Term Premium Rates (STPR). When you buy insurance for a longer period, you get better deals than if you were to buy for a short time only. This means that when you have initially purchased the annual car insurance, you got yourself preferential rates and now that you want to cancel the policy, the insurer is likely to charge you a higher rate because you’re no longer honouring the contract. The short term rates will depend on how far into the contract you currently are which means that the less time there is before the expiry of your policy, the less you will be charged for STPR.

Administration charges and other fees

So if you have 5 months left on your car insurance, the insurer will calculate the unused premiums left based on short term rates to see how much money you are owed. They will also deduct an administration charge (£30 with Tesco car insurance) for processing your request. If you have legal & breakdown cover as well, these fees will be taken from your refund too as you do not get partial refund for these additional services on your policy. After taking into consideration all these things, they will then be able to tell you how much money you are most likely to get as refund if you cancel your policy. You can terminate the cover immediately or at any future date depending on your circumstances.

For me, I paid £450 in total for premiums including legal cover and when I enquired to cancel after 7 months, I was told I would only get around £120!

UK law and cancellation of your policy

You are required to return your Certificate of Motor insurance when you cancel your policy. If you have lost the certificate, you will be sent a declaration form to sign over and return that would basically nullify your existing car insurance.

Any refunds will only be made to the same card which was used to purchase the insurance cover in the first place. So if like me, you have closed your bank account, you will not be given the option to be refunded by cheque because apparently, it’s to comply with money laundering. You also cannot change the bank details on file (I wanted to change mine to my new bank account but they wouldn't do it). It has to go on that very same card! The representative will tell you to contact your previous bank and inform them that the insurance company is going to credit that closed account and to come to an agreement with the bank so that they can forward the money over to you (another bank account or cheque or cash). It’s frustrating how there’s always so much hassle to get your money back and none when they have to take money from you, isn't it?

Something else that I forgot to mention is that if you make a claim before your cooling period is over, you are most likely liable to pay your premiums in full as the insurer will refuse that you back out when you've had an accident and they've got to settle the bill for repairs. Same thing will apply if you claim after your 14 days are over.