Switching insurance companies – how and why to do it

Tyler Wade
by Tyler Wade November 20, 2019 / No Comments

If you’re looking at switching insurance companies, there are several reasons why and each should be approached with due diligence and intelligence. Many bad things can happen if you don’t do it right, including losing car insurance altogether. 

So, whatever the reason – you bought your first car, and your parents want you off their auto insurance policy. Or your friends are talking about how they’re getting way better coverage or service. Or maybe you found a cheaper auto insurance quote. Here is everything you need to know about changing your car insurance policy. 

How to switch auto insurance companies – what to compare

The first step is to look at your current auto insurance policy. You want to make sure you’re comparing apples to apples. Sometimes, you could look at a cheap car insurance quote, but it doesn’t have all the add-ons, endorsements, and the deductibles aren’t the same. 

Let’s use car insurance in Ontario as an example. Its system is private, yet regulated by the provincial government. Privatization means you can change to any insurance provider at any time. Still, regulations mean they all have the same minimums. The minimum car insurance in Ontario is $200,000 for third-party liability, in case you injure someone or something.  Direct compensation property damage, which ensures you have a car if yours is in the shop. No-fault insurance, so you only ever deal with your provider. And then, accident benefits coverage for your injuries, and uninsured motorist, in case someone involved has no insurance. 

Minimums aside, common add-ons are collision (covering your car in an accident) and comprehensive insurance (covering your immobilized car from damage). Both collision and comprehensive each have a deductible associated with them that can range from $500 to $5,000. These are arguably the most common endorsements that are not mandatory and could be a significant difference when comparing car insurance policies. Another typical endorsement is OPCF27, extending your policy, so you have rental car insurance if you need to rent a car.

The not-so-common endorsements, but still valuable depending on your location, are specific perils like earthquake insurance if you’re in BC or roadside assistance. 

Now that you know how to compare let’s look at how to change it. 

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How to change car insurance policy – shopping around

Do not cancel with your existing insurer just yet. Always compare car insurance quotes from a variety of car insurers, the best way to do that quickly and efficiently is online.  And as we mentioned above, make sure you’re comparing the exact same coverage to understand if it’s genuinely the best rate. 

Another thing to compare is if the company has an excellent customer service rating. Check out our best car insurance companies in Canada to learn more. While a low rate is important, you don’t want to have any hassles if you need to submit a claim. 

If you found a better rate, a better customer service experience, and if your peers or online reviews are positive, you might now be ready to switch. 

How to tell your insurance agent you’re leaving

Before you cancel your car insurance, ensure your new policy is in place. An online insurance quote is only a quote, you may pay more or less after you speak with a broker. The broker needs to send you a contract, you need to sign the said contract and submit it back to them for the policy to activate. It’s critical to be 100% sure of what your final price will be. For instance, on your last policy, you may have had an endorsement for “claim forgiveness.” Claim forgiveness means any claim you make with that provider is stricken from their records. However, it’s not erased from your records. When you switch, that claim may rear its ugly head, and your rate may rise to reflect it. 

Next, if the new policy is good, all boxes checked, find out that date of when your new policy will start. Then, notify your old insurer. 

When cancelling, it’s best to do it in writing, regardless of your provider requirements. 

A written letter or email ensures you have a record of the request, the termination date, and when your coverage will end. You also want to make sure your policy dates line up and that you have no coverage gaps. 

Ask your provider if they have any other specific or formal requests to make a cancellation official. Then, sign everything – whether it’s their form or your letter to make it so. 

If you start your new policy without cancelling your old one and it renewed automatically, you may be subject to penalties. Or at least more hassle-laden stress-inducing paperwork to get it done. 

Switching car insurance mid policy (understanding prorating and short-rate)

If you want to avoid penalties or being out any money, the best time to change is at the time of renewal. However, there are occasions when cancelling mid-policy makes sense, even with all the penalties. 

If you’re cancelling early, the insurance company may prorate or short-rate your refund. You signed a one year contract, and now that money is not coming in, they may want to keep some to handle the administration costs involved. 

Prorating

If your insurer prorates your refund, you get back the portion of the insurance you won’t be using. Most policies are for one year. If you moved to Alberta 6 months into your contract and found a better Alberta car insurance rate, your insurance provider will refund the 6 unused months. 

Short-rating

Before you cancel, understand how your auto insurance company would manage a refund. If they short-rate, they could take a penalty from any financial return. In fact, sometimes the fee is expensive enough you won’t want to switch until renewal time comes up. In that case, notify your provider that you will not be renewing. Also, make sure your new policy is valid on the same date as your other expires. You don’t want to be paying for two policies, nor do you want a non-payment cancellation on your insurance record. 

The short rate fee for cancelling prior to your renewal date is usually about 1 months worth of your total premium. So, the longer you are into the term the less of a fee there will be. Each provider fee will be different, but close. For example, let’s say your policy premium is $2,000 per year. Let’s also say you choose to cancel about halfway through the year at 180 days. The premium earned would be 55% and the resulting fee would be $100. 

Also think about changing house insurance

We talked about an endorsement for claims forgiveness not following you to your new provider. You could also be missing out on longevity discounts, but if it makes sense financially, do it. In fact, one more thing to consider is your home insurance or tenant’s insurance. Often, insurers will offer a significant discount if you insure multiple products with them. If you had your home insurance with your old provider, ask your broker about porting that insurance over to your new policy to see if you could save on both. But, remember, take the same steps to do so as we’ve outlined in this article. 

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FAQs on switching insurance companies

 

Can I change my car insurance to another car? 

If you’re looking to transfer your car insurance to a new, or at least a different car, you don’t necessarily need to change providers. Nearly all insurance companies will allow you to switch your policy to a new vehicle and will alter the policy to reflect the change. There may be a small administration fee involved. If it changes the cost of your premium, consider shopping around. 

How to switch car insurance to a new car

If you bought a new car, you need to inform your insurance provider immediately. Beyond that, the steps laid out above remain the same. Call your insurer, there may be an administration charge (you might be able to check what the fee is in your policy). You can do everything over the phone. It’s a great idea to do it in the dealership because all the information is in front of you. 

Can I cancel my insurance at anytime?

Yes, you can cancel anytime into your policy, be it 1 or 11 months, just make sure you understand the costs if you are getting a short-rate.

I just renewed my insurance, but found a better rate, is there a grace period?

Most insurance providers offer a 15-day grace period if the quoted premium doesn’t match what’s in their system. If so, they offer a pro-rated cancellation.

Can I lock in my insurance rate 3 months ahead of renewal like a mortgage?

No, typically a quoted rate only lasts for a few days while you’re in the broker process.

Can I change insurance companies with an open claim? 

Switching insurance companies after an accident where you’ve made a claim is the same process as above. But it’s vital to know a few things. First, your old insurance company will handle the claim and any payouts involved. If you were in an at-fault claim, expect your premiums to rise. 

My insurance policy changed without notice, what do I do?

An insurance company is obligated to inform you of any cancellation. You may have thought it was junk mail, but it’s real. The lesson is to open every piece of mail from your insurance company and call them immediately if they wish to cancel. You need to understand the termination date of your policy so you can plan for your next steps. A cancellation could be from non-payment, material change (if you started driving for Uber, but you didn’t tell them), or if you’re racking up too many tickets – they don’t want to insure you anymore. 

The Bottom Line 

Whether or not you change policies or providers is up to you. In private car insurance provinces, it’s your right to do so. It’s the provider’s right to charge you penalties if they so choose. You want to make sure that after all is said and done, you’re truly saving money. Also, you need to believe that customer service will be better. Understand your policy, know what you’re looking for, and start comparing rates. 

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