Why am i being charged a penalty for canceling my auto insurance even though i bought new insurance for a better rate?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: May 17, 2018

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Insurance Question from Fayetteville, NC

Asked on 05/17/2018

Why am i being charged a penalty for canceling my auto insurance even though i bought new insurance for a better rate? We are a military family stationed in NC but are legal residents of Arkansas. We were not told that if our policy was canceled in the middle of its term, which seems to change every month, that we would be penalized.

Answer given on May 31, 2018

Each auto insurance company has its own way of handling a policy that the policyholder cancels.  There should be information in the actual policy explaining how such a cancellation is handled. Many insurance companies cancel the policy on a “short rate” basis, which results in a penalty to the insured when the policy is cancelled in the middle of the policy term by you the insured.  If you had an insurance agent they should have explained this, but often they do not.  You are expected to read the policy to understand how it can be cancelled by you or the insurance company and how the return premium will be handled.

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