November 15, 2010

How Policyholders Can Change Auto Insurance Carriers Without Assessing Penalties

Policyholders who are interested in changing auto insurance carriers might worry about whether they can do so without being assessed a penalty. There are a variety of reasons that may lead a customer to decide to switch to a new insurance company. Maybe they is unhappy with their carrier's customer service, or perhaps they can obtain a cheaper premium somewhere else. Shopping around for a new policy can often yield substantial rewards as premium prices for the same basic coverage can vary widely from company to company.

However, there are certain factors that the customer should bear in mind as they shop for new auto insurance carriers. An educated customer making informed decisions is better equipped to avoid costly mistakes. Typically, an insurance policy covers a specific time period which is known as the policy period. During the policy period, the policyholder is protected. Policy periods often last for either six- or twelve-month periods.

Fortunately, car insurance carriers are not like cell phone carriers. There is usually not an early termination fee for canceling one's service prior to the end of the contract period. Auto insurance carriers will usually issue a prorated return of premium for the canceled portion of the policy period.

Some auto insurance carriers charge a short rate cancellation when a policy is terminated early. This is done because of certain fixed expenses that the insurance carrier has incurred. Short rate cancellation will reduce the amount that the policyholder receives back, and the insured winds up paying more per day for their car insurance. The best way to avoid this penalty is to allow the policy to reach its expiration date and simply not renew.

Above all else, be sure to obtain new insurance before canceling old insurance. Policyholders who have been continuously insured often obtain a better premium than those who have allowed their coverage to lapse. The new auto insurance carrier should be able to coordinate the starting date of the new policy with the expiration date of the old policy in order to ensure continuous coverage.

Finally, the policyholder should verify that her old car insurance policy has truly been canceled. This is necessary because the majority of car insurance policies renew automatically every six or twelve months. If a policy is not properly canceled, then the insured may wind up paying for double coverage. The car insurance company will send an official cancellation notice in writing to confirm.

Savvy decision making on the part of policyholders will ensure that they do not wind up paying penalties to auto insurance carriers. Keep these relevant issues in mind when going through the process of changing auto insurance companies.