Reason Why it’s not Always Advisable to Switch Insurance Carriers

In spite of some the chance to get a better premium, it’s not always advisable to switch insurance companies.

Short-rating and prorating

If you cancel a policy before its due date, you should be refunded for (part of) the unused coverage. If, for instance, you canceled it nine months into the one-year contract, you should expect to be refunded for the remaining three months. You can’t just give up on that, because we may be talking about a considerable amount – one fourth of the average American premium of around $2,000 is close to $500, which is more than a week’s paycheck for some people. Getting the full amount back is known as prorating and, sadly enough, not a lot of insurance companies use it.

The short-rating system, as you may have guessed, gives you less money back. The company keeps some of that as a “penalty” for canceling mid-term, which is in the range of 10% of the remaining amount. If, for instance, you pay a $2,400 policy for the whole year upfront and decide to cancel after one month, you will be charged $220, representing 10% of $2,200. If the company you want to switch to offers the exact same coverage for $2,200 a year, you might have thought you made an economy of $200 when, in fact, you are losing $20.

No more fidelity bonus

Most, if not all major insurance companies reward their loyal customers. After all, you help them cut down on marketing costs – they no longer have to spend money to make you join the system, as you are already in. The loyalty bonus is in the range of 10% per year if you have been with the same company for more than a couple of years. If you are to switch carriers for the sake of a few pennies saved, you will not get this discount from the new company, so you may, in fact, be losing money.

When should you switch insurance companies?

Long story short, do it when it’s worth the hassle. Do the math well, analyze all hidden charges and penalties you may have to pay, and factor in a few hours of your time you will have to spend to do the research to find the right auto insurance rate and send in the paperwork.

Final tips

• Don’t forget to cancel the old policy once you have switched to the new carrier. Notify them in writing that you aren’t going to renew it, even though the company doesn’t specifically ask for it – should you be accused of non-payment, you will have proof that you are no longer working with them.
• Don't cancel the old policy before the new certificate gets to you. You are technically insured from the very moment you have paid for the insurance package; however, just to avoid any hassles, wait until you have the insurance papers in your hands.