It's important to have insurance policies in place on homes, vehicles, and other valuable assets. It's also a good idea to shop around regularly for insurance. After all, no one wants to pay more for car insurance or homeowners insurance than they have to -- and sometimes, coverage options change or a policyholder's needs change.
When switching insurance, or when a policyholder no longer needs coverage any more -- say because they sold a covered home or vehicle -- it's important to cancel the policy once the protection is no longer necessary. But what happens if the policyholder forgets?
Premiums could continue to be collected
When a policyholder forgets to cancel insurance, the insurance company often has no way of knowing the policy won't be needed any more. As a result, the company will keep charging premiums. Consumers could get a bill for their coverage or, if they have set up automatic payments of monthly premiums, the money could keep coming out of their account.
For those who pay annually, the insurer won't know to send any money back, so it'll keep the premiums that have been sent in already, unless or until the policyholder takes action to report the cancellation and ask for part of the money back for the portion of the year when coverage is no longer needed.
Refunds can sometimes be issued based on when the policy should have been canceled
It makes little sense to pay for homeowners insurance coverage on a sold home, and it also makes little sense for someone to have double insurance coverage in place. As a result, in some cases, it is possible to get refunded effective on the date the property was sold or new coverage was obtained.
To do this, it's usually necessary to contact the insurer, let the company know exactly when the coverage should have ended, and provide proof of sale of the asset or proof that a new policy was put in place.
The insurer's policy will dictate whether a policyholder gets all of their money back that was collected after the insurance should no longer have been in effect. And it's generally more likely that insurers will allow a back-dated refund in situations where the asset was sold, rather than when a consumer simply switched insurance companies. But ultimately, it comes down to what the insurer says and what state law requires.
Although some insurers do provide refunds, that is not the case in every situation. And state law doesn't always require that an insurer refund all the premiums collected after the date the cancellation should have become effective.
Depending on the local rules and the insurer's policy, sometimes a consumer may only get back premiums paid within a short time -- such as the previous 30 days -- even if the policy should have been canceled weeks or months before.
Be proactive so you don't lose out
It can be disappointing to find out that premiums paid for a policy that should have been canceled won't all be returned. Aim to avoid this by letting an insurance company know exactly when coverage needs to end before that end date occurs. By taking action in advance, policyholders can ensure they never pay for insurance coverage they don't really need -- and can use their money for more fun things instead.
