There are many transactions related to car insurance particularly in Ontario, where the market is highly regulated. There are laws, requirements, and terms of service to consider before purchasing a policy. The same applies for the cancellation of your car insurance, which can cost more than you think. In this article, we give some tips on car insurance cancellation fees, how to cancel your car insurance with a company in Ontario, as well as the fees involved.

Car Insurance Cancellation Fee

Whether you’re changing insurance companies, selling or taking a car off the road, cancelling insurance on a vehicle requires written notice to your insurance agent or broker. If you’re cancelling before the end of the policy term, insurance companies in Ontario are permitted to charge a fee for this cancellation to cover administrative and other costs. This is in the fine print of the standard auto insurance form all companies in Ontario use.

Short Rating & Prorating

When you do cancel your insurance before its renewal date, there are two factors you will encounter. Prorating returns money to you from the insurer, if you’ve already paid for all or part of the cancelled period. While many pay premiums monthly, some drivers pay annually or semi-annually. An amount paid for a period of time after cancellation is prorated and returned to you.

Short rating refers to the table that your insurer consults to look up administrative charges for the period of the cancellation. The short rate cancellation table is something most companies use. Simply put, you’ll pay more in cancellation fees the earlier in the term you cancel the policy. If your cancellation is near the end of the policy, the fee will be smaller. The difference between the short rate fee and any prorated premiums will be the true cost of cancelling your policy.

Proper Notification

writing cancellation letter

Since notifying your current insurer may cost you a cancellation fee, it’s tempting to simply let your current policy lapse by not paying. This is potentially expensive and risky. Non-payment of car insurance premiums gives a company the right to cancel your policy from their end. That’s the point, right? Well, if your company cancels you, you’ll be identified as a high-risk driver. Remember, risk to an insurance company means money. It’s usually money they have to pay out after an accident. In this case it’s money they aren’t receiving from you, that you agreed to pay when you bought the coverage. With a high-risk driver designation, insurers will be harder to find and your coverage will be much more expensive. Taking the time to write a proper cancellation letter will save you in the long run.

Simply calling your broker, cancelling over the phone or leaving a message isn’t acceptable. It’s difficult to prove there was a call or that it’s your voice on the answering service. Written cancellation is your best bet. Include thorough details, such as:

  • The named driver and any other listed drivers, and their signatures to show all are aware of the cancellation
  • The policy number and insuring company
  • The effective date of the cancellation.

Give the insurance company reasonable notice to process your cancellation. Remember, it’s their right to charge a fee for early cancellation. Avoid this by cancelling at the end of the policy’s term.