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How to get insurance premium refunds
Understanding your options can help you get as much of your money back as possible.
Making changes or canceling your insurance policy before the term is up may entitle you to a refund of the premiums you’ve paid. But if you haven’t read the fine print of your policy, your refund may be impacted by fees or charges you could have avoided.
What is an insurance premium refund?
Whether you pay your premiums monthly, quarterly or annually, certain life events and changes may require you to make changes during a policy period which you’ve already paid for. You might get a partial or full refund on your premiums if you:
- Move to a new home. Several types of insurance are based on where you live. So, if you move, you’ll need to make changes that could result in a refund.
- Change your coverage. Whether you’re changing who or what is insured or making changes to how much coverage you need, if those changes result in a lower insurance rate, you could get a prorated refund.
- Change insurers. It’s a great idea to comparison-shop your insurance regularly. And finding a better deal could leave you canceling a policy you’ve already paid for, which entitles you to a refund.
- Drop coverage. If you’ve sold your car, house or other item and cancel the policy, you could be entitled to a refund.
- Promotional refund. Some companies offer a partial refund on premiums as part of a promotional event.
- Relief-based refund. As we’ve seen with the coronavirus pandemic, certain circumstances or events may result in your insurer offering refunds on your premiums to offer relief in times of trouble.
Not every type of insurance treats refunds in the same way, and a lot can depend on how often you pay your premiums and whether you’ll face penalties for the changes you make.
Car insurance premium refunds
Canceling your car insurance can result in a premium refund, depending on when you made your last payment and how much of the term is left. For example, if you pay monthly and cancel five days into the month, you’re owed a prorated refund for the remainder of that month. But before you cancel, make sure you understand if there are any fees associated with your cancelation and how to avoid them.
Making changes to your insurance, such as dropping a car or driver from your policy, will more likely result in a credit toward your future bills, especially if you’re paying premiums month-to-month.
Home insurance premium refunds
Homeowners insurance premiums may be refunded for a couple different reasons, but typically only if you’ve pre-paid your insurance for the entire year, either through an escrow account attached to your mortgage or on your own. If you decide to move from your home or change to a different homeowners insurance company, you can get a prorated premium refund.
If your homeowners insurance premiums are paid out of an escrow account, you may need to take extra steps. The refund will come to you, not to the mortgage company. So when you get the check, you’ll need to endorse it over to the mortgage company so that it can be used to pay your new homeowners insurance premiums.
Life insurance premium refunds
If you prepaid your premiums for the year and cancel your policy before the year is up, you can get a prorated refund on that year’s premiums.
Otherwise, the only way to get a life insurance premium refund is if your policy has a Return of Premium (ROP) rider. Typically attached to a term life insurance policy, if you purchase the ROP rider and outlive the term of your policy, you’ll get the money you paid in premiums back at the end. This rider will make your premium more expensive, but the returned money is tax-free.
What is a prorated premium refund?
Prorated refunds happen when you’ve paid ahead on your insurance and end up canceling before the prepaid months have passed.
For example, if you paid for an entire year up front on your homeowners insurance, but then have to move only four months into the policy, you won’t get the entire amount you paid back, only those months that the policy will no longer be active, in this case, nine months worth of policy premiums.
What is mutual company profit sharing?
A mutual insurance company is one that is owned by the customers rather than a private owner, such as an investment company. In a private ownership situation, the owners take the profits the company generates and distributes them to investors and board members. But with a mutual company, the profits are shared among the customers, typically as dividends.
In essence, those dividends are a partial return of your premiums for the year.
How do I get my refund?
Your premium refund should be part of the cancelation process, regardless of the type of insurance. But don’t assume it’s automatic. Ask your insurer as you go through the cancelation process in case the company requires that you fill out an extra form to request the premium refund. And if your refund is coming by check, always verify your mailing address with the company.
Your refund may be issued to you in one of these ways:
- By check
- By credit to your bank account
- By voucher or account credit, if you’re changing policies within the same company
How long does it take to get my refund?
You should be prepared to wait two to four weeks to get a refund on a canceled policy. Other refund wait times may vary. Some refunds are automatic and will be reflected on the following month’s billing statement.
What should I watch out for?
Before you decide to cancel or make changes to your insurance, make sure you take the following precautions to maximize your premium refund:
- Time. Make sure you give as much notice as possible when you plan to cancel. Every day you wait could adjust your prorated refund or even cause you to have to pay an additional month, depending on the rules surrounding cancelations in your policy.
- Fees. Canceling or transferring your policy can often come with a fee that will most likely be taken out of your refund. So make sure you understand any fees that apply and how to avoid them, if possible.
- Reason for refund. Make sure to carefully read the terms of your policy, so you know when you’re eligible for a refund and when you’re not.
- Don’t go it alone. Never be afraid to reach out to your insurance agent to help walk you through the process, so you don’t miss any steps.
Getting the most out of your refund can be a matter of timing and understanding your policy’s fine print. But the best way to save as much as possible on your insurance is to always compare coverage options and prices between insurers to make sure you’re getting the best deal on the coverage you need.
Frequently asked questions
How long does it take to get an insurance premium refund?
That depends on the company and circumstances of the refund. But it generally takes between two and four weeks. It may be faster with an electronic payment, such as if you have direct deposit set up.
Does canceling your insurance affect your credit score?
No, unless canceling leaves you with a gap in your car or home coverage, which could cause your rates to increase. It’s a good idea to have your new policy in place before canceling your current policy. If you mix up your dates when signing up for a new policy and end up with a gap of a few days, call your new insurer and ask for coverage to start sooner, or see if you can get retroactive coverage.
How much are insurance cancelation fees?
Most companies don’t charge anything to cancel. Your policy should spell out any fees associated with canceling your policy, and whether the fee is a flat amount or a percentage of your premium. But the policy should also explain how to cancel your policy without having to pay any fees if that’s an option.
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