How long does it take to get a refund from a canceled insurance policy?

Insurance Q&A: “How long does it take to get a refund from a canceled insurance policy?”

So you canceled your existing insurance policy and switched to a new insurer. Congratulations on taking a leap of faith. Most people “set it and forget it,” never realizing they could be saving money each month.

If you didn’t make this move well in advance of your policy renewal, or even during the middle of your policy term, your previous insurer will owe you for the amount you overpaid for their “too expensive” insurance.

The million-dollar question is, “How long will it take to get your money back?” The truth is, it depends on the insurer who owes you the money after the policy is canceled.

How do you cancel an insurance policy?

The first thing you need to do before you cancel your current policy is to sign up for a new one, assuming you still need coverage. An insurance lapse can end up costing you a lot of money, and even result in license suspension if you’re caught driving without auto insurance coverage. Assuming you’ve already done that, the cancelation process will vary depending on the insurer.

Generally, you will need to call and speak to a customer service agent from your current insurance provider. Explain that you wish to cancel your policy and they will give you further instructions. You may have to fill out and sign a cancelation request, then mail or fax it in. Make sure to get the company’s mailing address if it isn’t on the form. You may also have to put a refund request in writing.

When you call, ask about any potential fees or refunds of your insurance premium. You are entitled to a return of your unused premium.

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Which insurance company owes you money?

Some insurers are “dialed in” when it comes to accounting and the return of overpaid premium in the event of a policy cancelation.

For example, if you have a Progressive policy, Progressive Insurance has a knack for delivering a return premium check within seven business days of cancelation, which is pretty amazing as far as insurance companies go. You can even connect with them regarding their Progressive auto insurance refund policy.

However, don’t celebrate at hearing it may only take a week. Many insurers are not as quick as Progressive.

The reality is that you should expect a slightly longer time frame to receive your return premium check from most insurers.

We are talking about giant, multi-billion dollar corporations here, so your “few hundred dollars” is not typically considered a crisis situation to many of these companies… no matter how important it is to you!

What is a reasonable time frame to expect money from a canceled policy?

On average, you should prepare yourself to wait 2-4 weeks for your premium refund from an insurance company.

Let’s face it. The average human being (or company, for that matter) is not in a terrible hurry to return your money after you’ve told them to take a hike.

Not to mention the process typically requires signatures on mandatory cancelation forms, which might have to change a few hands before landing on the desk of the person (or computer) who writes the return premium check.

What happens if you wait for your money longer than four weeks?

In some cases, you may have to rely on an insurance agent or broker (broker means different things in different states) to provide you coverage.

In this situation, your request to cancel a particular policy may have to pass through a couple sets of hands before a return premium check is issued.

Each company involved may have an “accounting period” of up to 30 days. One insurer may require 30 days notice of cancelation to offer a return premium.

If you have an agent or broker who sold you a policy that “went through” another insurer, you can double that 30-day waiting period to 60 days, as the reporting and accounting cycles are realized. It all adds up!

At the end of the day, most of us prefer to avoid confrontation at any cost. Often, this means putting off “the conversation” related to canceling an insurance policy.

The best bet is to “pull it off” like a Band-Aid. Just call and get it over with. You will get a much better response, and likely a faster turn time on your refund, if you contact your agent ahead of time and let them know you are switching insurers.

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What are the types of policies you can cancel?

Escrowed Homeowners Insurance

If your homeowner’s insurance payments are escrowed, it is relatively easy to avoid the hassle of waiting for refunds. There’s a much easier way to allocate your refund rather than having to wait for a refund check from homeowners insurance. You would simply call your lender at least 60 days prior to your policy renewal (the existing policy) and instruct the lender not to pay it. You should tell them you are shopping your coverage – for whatever reason – and will notify them when you have made a decision.

Once you find a new policy you like, contact your lender and approve the payment to the new insurer.

This should be done 60 days in advance to avoid having your lender pay the renewal for the policy you no longer want. It is not uncommon for insurers to send renewal invoices that early in the game. If your lender makes the payment, you may have to pay for the new policy out of your own pocket and wait for the refund check.

Lenders who hold your note and service your policy will often make more than one policy payment for one term (12 months) and simply ask you to apply the refund you receive from the canceled policy to your escrow account once it’s received. Just be sure to send them the refund money or your escrow account will be short and you don’t want that.

Examples of these lenders would be big banks such as Bank of America, Wells Fargo, JPMorgan Chase, etc.

If your mortgage is serviced by a company other than the lender who holds the note, you will likely have to pay out of your pocket and reimburse yourself as described above.

Learn more about switching homeowner’s insurance companies when you have a mortgage.

Auto and Non-Escrowed Home Insurance

Both of these policies are paid by direct bill, meaning you personally pay the insurance either by mail or electronic funds transfer (monthly e-check or credit card). You will also have to check with the individual company to find out what their policy is. The Progressive Insurance refund policy might be different from the State Farm cancelation refund, or Allstate’s cancelation and refund policy.

The time frame might differ depending on which company you use, or which type of policy you have, be it home or auto insurance. A homeowners insurance refund check can act much differently than a refund from an auto policy.

There really is no rocket science to determine the best time to cancel these types of policies to avoid having a double payment out there and waiting for reimbursement.

You must simply determine the exact last day your “money runs out” on your existing policy. If you have paid through the 15th of the month, you should have your new policy start on the 15th and stop payments to your old insurer after that point.

Can anything go wrong when you cancel a policy?

We’re glad you asked. Yes, things can go wrong if you do not time everything correctly. Worst case scenario would be having a problem of some sort with your new policy after canceling the existing policy…leaving you without coverage for a period of time.

Getting into an accident and/or having to file a claim when you don’t have coverage can be financially devastating. You really don’t want to be in this position if you can avoid it.

A lapse in coverage with auto insurance can also result in more expensive premiums when you sign up for another auto insurance policy.

But encountering a problem with a new policy is pretty rare, so you shouldn’t be too worried about it. A good agent will be able to ensure there are no lapses in coverage. That’s what they get paid for.

To avoid such complications, simply obtain a new policy before canceling the one you don’t want anymore. Of course, you’ll be back in the same boat of waiting for a refund if you go this route.

Your insurance provider may also charge cancelation fees, which would cut into your premium returns when you cancel.

The Bottom Line

At the end of the day, if making the switch is really worth it, you shouldn’t care too much if you have to wait for the refund from your current insurer.

If you’re looking for cheap car insurance or homeowners insurance, the best thing to do is shop around and get quotes from multiple providers. Most companies allow you to get an online quote in minutes, or you can use a comparison tool to get multiple quotes at once by just entering your ZIP code.

Keep in mind that many companies offer a multi-policy discount for bundling home and auto, so if you’re switching one policy, it might be a good idea to consider switching both.

Read more: How to lower your auto insurance bill.

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