Can I cancel my car insurance early?

Are you looking to sell your car, or maybe move to a new province, and are wondering if you can cancel your car insurance policy early? You absolutely can, but you'll likely face penalties. A standard car insurance policy typically lasts 12 months, but that doesn’t mean you can’t cancel your policy before it expires. Keep reading for more information on how to cancel your car insurance policy early and the possible penalties for doing so.

Common reasons for cancelling your auto insurance early

Drivers might want to cancel their car insurance policies for various reasons. From moving provinces to selling your vehicle, below are a few of the most common reasons drivers in Canada may cancel their auto insurance policies early:

You're moving to another province or country

If you move to another province or territory, like moving from Ontario to Alberta, or even to another country entirely, your existing insurance will not carry over with you. As such, you will need to cancel your existing policy and purchase a new one from an insurance company that offers coverage in your new location. To avoid a lapse in coverage, don't forget to set up your new car insurance plan in advance of cancelling your current policy.

You're selling your vehicle

You may wish to cancel your car insurance policy early if you sell your vehicle with no plans to replace it. Perhaps you've decided to downsize the number of vehicles your family has due to lifestyle changes, or maybe you’ve switched to relying on public transit, cycling, or a company-provided vehicle for your daily commute. BrokerLink’s experts recommend maintaining coverage right up until the new owner takes possession and the title has been transferred.

You're combining your policy with another

Bundling insurance policies can often lead to significant savings. If you’ve recently purchased a home or moved in with a partner, you might choose to combine your auto insurance with their existing policy under the same provider. Many insurers offer discounts for bundling auto and home insurance or multiple vehicles under one policy. Before cancelling your current policy, confirm with your insurer that your new, bundled coverage is active to avoid any gaps in protection.

You want a better deal

A recent auto insurance survey from Ratehub.ca found that 57% of drivers switched insurance providers after facing a rate hike. Perhaps you let your insurance automatically renew, only to discover soon after that you can find a much better deal with a different provider. This may tempt you to cancel your existing policy early and purchase a new policy at a lower rate.

If you choose to go this route, make sure your new policy is valid before cancelling your existing coverage. While it’s generally recommended to wait until your existing policy is up for renewal before buying a new one, you may determine that it's worth the cost to switch policies mid-term.

How to cancel your car insurance

Should you decide that cancelling your car insurance policy is in your best interests, BrokerLink has put together a guide to doing just that. Check out our step-by-step guide to cancelling auto insurance early in Canada:

1. Purchase a new policy (if applicable) before cancelling your existing policy

Auto insurance is mandatory in Canada, so you never want to be without it. Otherwise, you run the risk of getting caught and facing serious fines.

Therefore, if you still plan on driving after cancelling your existing policy, make sure to purchase a new policy from a different insurance company that is valid from the date your old coverage ends. A lapse in coverage can have serious consequences on your insurance premiums, such as higher rates or trouble finding coverage. Contact BrokerLink today to help you find a new car insurance policy that suits your needs and budget.

2. Contact your insurance company

To cancel your existing insurance policy, you will need to get in touch with your insurance company either on your own or through your insurance broker. Before submitting your cancellation request, ask your provider for a refresher on the cancellation terms, including any applicable penalty fees. Please note that some providers may require 30 days’ notice for policy cancellations.

3. Sign and send a cancellation letter (if applicable)

Some car insurance companies may require you to sign and send a formal letter requesting your coverage to end (this may be digital or by mail). The cancellation letter will likely include your policy number, name, and the date you want your policy to end. This may have to be signed by everyone involved in your insurance policy if there is more than one vehicle owner.

Penalties and fees for early cancellation

If you cancel your car insurance before your policy term is up, your insurer will likely apply what’s called a “short rate” cancellation penalty. Instead of just charging you for the days you were covered, they’ll take a larger percentage of your total annual premium.

Many people call this a “short rate cancellation fee,” but it’s not a fixed charge. It’s actually a penalty that changes depending on when you cancel. The earlier you cancel, the higher the penalty. Here's what you need to know:

How a short rate cancellation penalty works

Let’s say your annual car insurance premium is $1,200, which breaks down to $100 per month. If you cancel halfway through the year (at month six), you might expect to pay just $600 for the coverage you used. However, with a short-rate cancellation penalty, the insurer charges a higher percentage than a simple pro-rated amount.

For example, instead of charging 8% of the total premium ($100) for just one month of coverage, your insurer might charge 20% ($240) as a penalty for cancelling early. That extra $140 (which is more than what you actually used!) is the short-rate penalty. Using that same example above, here's how a short-rate cancellation table might look:

The exact percentage varies depending on your insurance provider’s own short-rate cancellation table, so it’s always good to check your policy terms before cancelling.

Why are policies cancelled short-rated?

Insurance companies use short-rate cancellations to help cover the costs of setting up a policy. A lot goes on behind the scenes, from processing paperwork to assessing risk, and these administrative expenses add up, whether your policy lasts a week or the full year. The short-rate cancellation penalty helps offset those costs, ensuring the insurer isn’t left covering setup expenses for policies that get cancelled early.

Can you get a refund after cancelling your policy?

If you cancel your auto insurance coverage early, you may be entitled to a refund. However, it is rarely a full refund. If you paid for your full policy upfront, your insurance company may refund the remaining balance, prorated based on the number of days the policy was in effect. However, if you pay for your insurance policy monthly, then don't expect a refund.

Further, since you're likely facing short-rate cancellation fees, even if you are entitled to a refund, it might not be much once these fees are charged. We also feel it's important to note that if the insurance company cancels your policy for a reason like non-payment, you won't be entitled to a refund, even if you paid for your full policy upfront.

Can you avoid cancellation fees when cancelling your policy?

The only way to cancel your car insurance without paying a short-rate cancellation penalty is to do it on your policy expiry or renewal date. If you cancel before your renewal date or switch to another company mid-policy, you’ll typically face a short-rate cancellation charge.

That said, there are rare cases where an insurer might agree to cancel your policy pro rata (meaning they only charge you for the time you were covered, without extra penalties).

One example is if you’re moving to another province and setting up a new policy with the same insurance company in your new location. Since auto insurance rules vary by province, you’ll need to cancel your existing policy and get a new one where you’re moving. If you stay with the same insurer, they may allow you to cancel pro-rata instead of charging a short-rate penalty. It’s always worth asking your insurer if this exception applies to your situation!

Contact BrokerLink to get your next insurance policy

To learn more about finding a new policy, contact BrokerLink today. BrokerLink’s insurance advisors are experts at finding great car insurance policies at low rates. You can count on us to find a policy that meets your lifestyle and budget.

You can reach us by phone, by email, or in person at any one of our locations throughout Canada. We also encourage you to take advantage of our free online quote tool that can provide you with a competitive quote in minutes.

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FAQs: Car insurance cancellation fees

Can I make changes to my car insurance policy?

Yes, you can make changes to your car insurance policy, but it might require you to open a new policy. As such, you could face cancellation fees or penalties for ending your current policy early. Depending on the terms of your policy, it might make more financial sense to wait until your current term ends.

If you have any questions, contact one of our local branches.