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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.
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:
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.
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.
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.
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.
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.
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.
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:
You should be prepared to wait two to four weeks to get a refund on a canceled policy. Other refund wait times may vary. For example, the Covid-19 car insurance refunds are mostly automatic and reflected on the following month’s billing statement.
Before you decide to cancel or make changes to your insurance, make sure you take the following precautions to maximize your premium refund:
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.
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