What to Expect When You Cancel Your Insurance Policy
Over the years I have worked in different teams in different businesses and I have dealt with my fair share of complaints. These usually occur when there is a mismatch between what the client expects and what is actually going to happen or what is possible. This is certainly the case in claims and cancellation and I think it is vital that brokers are helping to educate their clients to help explain the process and narrow the knowledge gap.
When a policy is cancelled clients expect their money back but it is not always as simple as that and here I explore why.
What to expect when you cancel your insurance policy?
Insurance policies have a cooling off period, so if you change your mind after you have taken out the cover and want to cancel it you can, this is usually subject to no claims being made during this period.
If you cancel during the 14-day cooling off period, you will get a refund of any premium paid, although the insurer can deduct an amount to cover any days when you were insured, plus an admin fee. If you cancel outside this period, your refund is likely to be proportionately smaller.
Some policies may have a different cooling off period or none at all so it is worth checking.
Will I get a refund if I cancel my insurance?
You might expect to get something close to a pro rata refund of any premiums, less any cancellation charge. So, if you’ve got six months left on your policy, you’d think you’d be due six months-worth of premiums back.
You’d probably be disappointed. Practice varies, but insurers usually don’t refund the last two months of premiums, so if you are close to renewal, it’s probably worth seeing out the remaining months before you switch to a better deal elsewhere.
And, provided you've not made any claims, hanging on to your policy until it ends will also ensure you get the no claims bonus for that year.
If you cancel half-way through the year, you’ll probably only get four months of premiums back. This is all because insurers fund their admin costs with the early months’ premiums.
Can I cancel if I pay for my car insurance monthly?
With car insurance, many people choose to spread the cost by paying monthly by direct debit.
But take note: simply cancelling your direct debit doesn’t mean you’ve cancelled the policy.
Tell your insurer you want to cancel and get confirmation from them, otherwise they might chase you for unpaid premiums.
And even though paying monthly means you're effectively paying for your insurance as you use it, when you cancel you could still find your hit not only with the standard cancellation fee, but also with another that's a percentage of the total policy price.
How long does it take to get my money back?
If you buy insurance directly from an insurer then they can refund the money to you, usually within 5-7 working days. This is because they hold the client’s money and can process the request quickly, it is not quite as straightforward for insurance brokers and here is why;
Insurance is a regulated industry and as such there are very strict guidelines on client money which while it exists all the time in the background and governs the way transactions are managed between client, broker and insurer it only impacts the policyholder in the event of a cancellation.
Put simply the client money regulations mean that an insurance broker can only use the money they receive from your policy to pay the insurer and if the policy is cancelled then the insurance broker must get your money back from the insurer before they can pay it back to you – brokers are not allowed to just pay money from a pot held in their bank account and it is this which delays the process and can lead to mismanaged client expectations and complaints.
If you go into a high street shop to return an item they can process the refund and have the money back into your bank account, or at least on its way, the same day. With insurance most brokers will work on an account basis so if a transaction is processed with an insurer in April it won’t appear on the account until the end of May, at which point the money will be returned to the broker as part of the settlement of that month’s statement. It is only then when the broker has received that money can their accounts team refund the money to the client.
Where do you think brokers could do better at educating clients? I would love to hear your ideas. Drop me a line at catherine@catherinefrance.com or find me on Twitter at @CathFrance and start a conversation.
