In most cases you are allowed to cancel your car insurance early. However, there are a number of issues and financial considerations to bear in mind.
Cancelling within the cooling-off period
If you cancel your policy during the initial 14 day cooling off period and your insurance policy has NOT yet started then you should be entitled to a full refund less any administration fee.
Cancelling when your policy is already active
If you cancel your policy during the year whilst your policy is active, then in most cases you will be entitled to a refund of your premium minus the cost of any unpaid time that your insurance has been active.
You may also be charged an administration fee. Each company has its own rules on levels of refunds for cancellations and fees, so check your policy wording or contact your insurer before cancelling. On average a cancel fee is around £30-£50.
Be aware of Continuous Insurance Enforcement
Unless you have completed a SORN (Statutory Off-Road Notification) with the DVLA, your car must be insured at all times (Continuous Insurance Enforcement).
This means you must be insured even if you're not driving it or if it’s parked on the street, driveway or even if it is parked in a garage. Many people think that as long as you park your car on private land then you don’t need insurance, this is incorrect. You must always have insurance unless you have sent a SORN to the DVLA.
The DVLA maintain a database of which cars are insurer and which are not. This information is shared with the police and you can be fined and receive penalty points for not being insured.
This means you need to ensure there is no gap between cancelling one policy and starting a new one, otherwise you will be breaking the law.
No Claims Bonus implications of cancelling your policy
If you cancel your car insurance, you will lose any No Claims Bonus that you have built up during the year. This means you will not earn any new No Claims Bonus for the partial year your cancelled policy was in force.
So, for example, if you had 3 years No Claims Bonus when you started the policy, you will still have 3 years No Claims Bonus when you cancel it, regardless of when you cancel it. No Claims Bonus is only earned for every full year of insurance.
Is it worth cancelling my current car insurance and starting a new policy?
If you find a cheaper policy, you will need to work out if in fact it will be cheaper in the long run.
For example, you need to find out exactly how much of a refund you will get back from your current policy based on your current insurer's specific rules and how much you will need to pay in administration fees for cancelling early.
Importantly, you need to take into account the cost of losing your No Claims Bonus for the current year. For example, if you cancel 6 months into your policy, your new policy will not take into account any of the last 6 months bonus you have built up. If you were to keep your existing policy to the end of the 12 months, then you will earn an extra year of No Claims Bonus. This extra year could give you a significant discount on your renewal which far outweighs any gain you might make by cancelling the policy now.
So, unless you have found a policy that is significantly cheaper, you may find it's either not worth cancelling or in fact you will end up losing money due to admin fees and lost no claims bonus.