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HomeCar Insurance ResourcesCar Insurance Cancellation Fee – What You Should Know

There can be several different reasons as to why you may want or need to cancel your vehicle insurance. If this is a situation you find yourself in then there are some important things you need to know about this.

Do You Have To Pay A Cancellation Fee For Car Insurance?


It depends on the insurance company.

Contrary to the belief of many all insurance companies are not the same. They do have a lot of similarities for example the way they determine the premium rates for their clients. Even these have some variations.

When it comes to cancellation fees in many cases there is no fee to deal with. But, there are times when there may be some fees involved in order to cancel the coverage.

The Insurance Company’s Viewpoint

view point

In order to come to a decision about what to charge for premiums, it takes time for the Insurance company to do this. Although they have a specific list of questions they will ask and insurance applicants that will allow them to quickly determine a portion of the costs. The rest is based on the personal details of the applicant themselves. This process of determining premiums creates administrative costs for the Insurance company. Normally when they determine the premiums it is on a yearly basis. If a client is canceling their insurance before renewal then it incurs extra administrative costs. For this reason, a company may decide to charge cancellation fees. They can determine what the cost of this will be based on using one of two methods. It also depends on how the insured is paying their premiums. Some pay the full premium for the year. Others pay by the month or through some other type of arrangement.

Pro-Rating Cancellation

In this case, any unused amount in the premium paid will be refunded. There are no cancellation fees associated with this.

Short Rating Cancellation

With this method, the insurance company will take a specific amount of the refund that is deemed as a cancellation fee. This is legal as they are allowed by regulations to take into account administrative fees that come with the cancellation of the policy. How much will be determined as to when during the course of the policy covers the cancellation is being made. Often if it is early in the policy covers the cancellation fees will be higher.

For those who pay their premiums in installments, the cancellation fee process may be a little different. It may be less but it still could exist, as there are admin duties required for the cancellation.

Being Informed

giving information

Before going ahead and canceling the insurance it is important to know:

  • If cancellation fees are going to be applied
  • Which method is being used to calculate this
  • What the actual amount will be.

Then it is time for some decision-making and comparisons. If the cancellation fee is going to be close to what the savings would be on the new insurance, then is it worth it? It might be better to just wait until renewal time.

How Can I Cancel My Car Insurance Without Fees?

Canceling when your insurance comes up for renewal.

The most effective way to cancel vehicle insurance without paying a penalty is to not renew it when the policy has expired. Most policies run on a yearly basis. You are not compelled t renew so there are no charges involved if you decide not to stay with your current Insurance company.

There may be special circumstances where the cancellation fees will be waived. For example, there are some who are moving to another province and want to get their insurance from there. If the client is going to take out insurance with the same company in that province, then there may not be any cancellation fees involved.

How Do I Avoid Cancellation Fees?

Cancel on your renewal date.

Another way you can avoid these types of fees is knowing if they are likely to exist before signing up with an insurance company. You can directly ask them this question. If the answer is yes then ask them which method they will be used to calculate this which is either the pro-rate or the short rate.

Nobody starts out with an insurance company with the intention of canceling it before renewal. But circumstances can arise that may create a need for this. Knowing ahead of time what the costs could be is beneficial. It might get you to re-considering whether you want to go with that particular company or not.

Do You Get A Refund If You Cancel Your Vehicle Insurance?

refund calculator

Some are under the assumption that they will automatically get a refund if they cancel their insurance. Depending on the circumstances this may be correct. However, it will depend on:

  • How the insurance premiums were paid
  • When the cancellation took place
  • What fees are being deducted for cancellation

Can I Cancel My Vehicle Insurance Whenever I Want?

Everyone has the right to cancel their vehicle insurance anytime they want. They do not have to give the reasons why they are canceling their insurance company. However, they do have to honor any payments that are due to the company. In addition, it has to be remembered that vehicle insurance is compulsory in Canada.

Following The Right Process To Cancel Vehicle Insurance

  • To do this properly it is important to follow some steps such as:
  • Review your policy for any rules that pertain to cancellation
  • Speak to your insurance representative directly and find out what the process is to cancel the insurance. Every insurance company has different ways to go about this.
  • Put it in writing. A verbal cancellation is fine, but follow this up in writing. It can be an email, and you should get confirmation that they have received this


  1. Frank 23 March 2021 at 10:10 am - Reply

    Does selling your vehicle still allow insurers to charge cancellation fees thereby locking you in to sell your car on only the renewal date?

  2. Josee Doucet 17 March 2022 at 10:39 am - Reply

    What about if you find an significant saving with a competitor and want to cancelled if you in only two into the new policy ?

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