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Risks of Changing Insurance Companies Or Switching Providers


What are the risks of changing insurance companies? Switching car insurance providers is hassle-free and won’t result in penalties or negatively impact your credit score. Unlike many other services, drivers typically don’t encounter cancellation fees even if they decide to switch mid-policy. So, rest assured, and there won’t be any adverse consequences for making the switch.

Furthermore, contrary to common misconceptions, switching car insurance won’t make you appear less favorable to potential car insurers either. Even if you decide to use multiple providers within a short period, it won’t create obstacles in getting coverage. Regularly obtaining car insurance quotes and changing insurers frequently don’t have significant downsides.

However, there is one scenario where if you switch insurance companies, it can become problematic. That’s when you cancel your old car insurance policy early without having a new one in place. This could result in a lapse in coverage, leaving your car uninsured for a period of time.

Such a lapse can lead to a tarnished driving record or even legal consequences. To avoid this, ensure your new insurance begins before your old policy expires, so you never have to worry about driving without coverage.

Possible Pitfalls When Changing Your Auto Insurance Company

Carelessly switching your car insurance company can lead to several potential risks, such as increased overall costs, lapses in coverage, and any incur cancellation fees.

Considering the Big Picture

While the allure of lower rates with a new policy might be tempting, it’s essential not to overlook the discounts you might enjoy with your current insurer. For instance, bundling your car insurance could grant you a significant discount on both policies, resulting in lower overall rates. If you switch and lose that bundle discount, you may pay more.

Imagine having a 20% bundling discount with your current insurer, making you pay $1,000 annually for each policy. After changing your car insurance provider, your car premium drops to $980 annually. However, your new homeowners insurance costs $1,250. While you saved $20 on car insurance, you’re now paying $230 more overall due to the lost bundling discount.

Beware of Coverage Gaps

Switching policies without careful planning can create coverage gaps if your new policy’s start date isn’t well-timed with the end of your current one. These lapses in coverage raise red flags for car insurance companies, and even a single day without coverage can lead to higher rates in the future.

Always ensure your new policy starts on the same day or before your current policy ends. If you must cancel your existing policy before its term ends, check with your insurer about potential prorated refunds for the unused coverage period.

The Cost of Cancellation

Before you switch insurance companies, checking whether your current insurance company imposes a cancellation fee for terminating your policy early is crucial.

If there is a fee, it might be wise to time your new policy’s start date to align with your current policy’s expiration. Alternatively, calculate whether the savings from switching outweigh the cost of canceling your current policy prematurely.

Losing Loyalty Benefits

Staying with one company for an extended period often comes with loyalty benefits or discounts as an incentive. Some national carriers, like State Farm, Allstate, Farmers, USAA, and Mercury, offer such rewards to customers who remain loyal for one to three years.

If you enjoy a loyalty discount and are considering switching companies, ensure your new policy remains cost-effective even after factoring in potential loyalty benefits.

Knowing these risks will help you decide when to change a home or car insurance company. Proper research and consideration of your circumstances will ensure you find the most suitable and cost-effective car insurance company and coverage.

Is it Possible to Switch Car Insurance Companies Before the Renewal Date?

Yes, customers are typically free to switch their homeowner’s or car insurance at any point during their policy period. However, before deciding to cancel your current policy before it’s due for renewal, it’s advisable to consult your insurance agent to understand the cancellation process and any potential fees that might apply. An alternative option is to arrange for your new insurance policy to begin on the same day your current one ends.

How Often Should You Consider Switching Car Insurance Companies?

It’s generally a good practice to shop around for insurance rates every six to twelve months to ensure you get the most favorable options. Home insurance policies typically last for a year, while car insurance policies can be sold in either six-month or twelve-month terms.

It’s a good idea to time your switch and compare car insurance rates either on your policy’s end date or just before it to prevent any lapses in coverage. Additionally, certain life events may prompt you to seek new insurance options and switch companies.

For instance, scenarios such as getting married and adding your spouse and children to your car insurance, having a new driver with your child obtaining their driver’s license and joining your auto policy, or moving homes may lead you to consider switching auto insurance companies or changing carriers.

Furthermore, if a family member joins the military, you might qualify for a military discount or a policy with unique military perks offered by companies like USAA. Exploring these situations can help you find the most suitable insurance coverage for your changing needs.

Are There Consequences When You Change Car Insurance Companies Multiple Times?

Switching insurance carriers multiple times usually does not result in any penalties. Insurance companies do not typically increase rates based solely on the number of times you have switched auto insurers.

Switching a new car insurance company or insurers should not negatively impact your credit score. Insurance companies may perform a soft pull on your credit report when providing insurance quotes, which does not harm your credit score like a series of hard inquiries.

When Should You Avoid Switching Car Insurance Companies?

While switching insurance companies is generally hassle-free, there are instances where it might be better to stick with your current provider or insurer or wait until your current policy expires before making a change.

Here are some factors to consider before purchasing a new home or auto insurance policy:

Recent car accident:

If you have recently been involved in a car accident, your insurer may apply a premium surcharge when you renew your policy. Switching car insurance companies during your mid-policy could indicate facing elevated rates sooner than necessary.

Loss of discounts:

The overall savings might be higher if you benefit from discounts, such as a multi-policy discount for bundling your car insurance. Switching to a new auto insurance carrier may lead to a lower premium for the car policy. Still, it could substantially increase the cost of your home insurance, negating the potential savings.

Tips If You Want To Switch Car Insurance Companies

When it comes to switching insurance companies, follow these steps to ensure a smooth transition and compare car insurance without any coverage gaps or unnecessary expenses:

Gather Multiple Quotes

Begin by obtaining quotes from various insurance providers. This will help you gather and compare rates to find the best deal. Don’t hesitate to ask about bundle discounts or other cost-saving options.

Research Company Reputation

Beyond pricing, investigate the reputation and customer service of the insurance companies you’re considering. Read customer reviews and consult third-party rating agencies like J.D. Power for additional insights. One insurance provider that offers competitive prices is Insurance Navy. They provide a wide range of coverage options for their customers.

Understand Cancellation Policies

Contact your current insurer to understand the implications of switching companies. Ask about any potential fees and whether you’ll receive a prorated refund if you switch in the middle of your policy term.

Coordinate Policy Start Dates

Schedule your new insurance policy to start on or before the end date of your current policy. Avoiding any gaps in coverage is crucial to prevent higher rates in the future.

Keep Proof of Insurance Handy

If you’re switching auto insurance, expect a new proof of insurance card in the mail. Store this card safely in your vehicle, so you can provide it easily, for example, in an accident.

Notify Your Lender

Your lender will require car insurance coverage if you have a financed home or car. Inform your lender about the change in carriers to avoid any misunderstandings or the possibility of them purchasing a more expensive policy on your behalf.

Following these steps, you can smoothly switch car insurance rates and companies and save money while maintaining continuous coverage. You can ensure that you have clear communication with your current insurance provider, especially if any car accidents have occurred recently.

Frequently Asked Questions (FAQs)

Is it a problem to switch insurance providers frequently?

Moving to different car insurance companies is not a concern as long as your current company and you verify that your overall costs won’t increase. Additionally, ensure the new car insurer has a strong track record for customer service and handling claims.

Does changing insurance companies affect your credit score?

Generally, obtaining auto insurance quotes results in soft credit inquiries, which do not negatively impact your credit score. Your credit history is the one that can affect your score the most.

Is it worthwhile to change insurance carriers?

Switching auto insurance providers or companies is worthwhile if the new provider can offer equal or better coverage, excellent service, and a lower premium. However, consider the potential loss of loyalty or multi-policy discounts, which could lead to higher overall costs.

Can I adjust my auto insurance coverage at any time?

You can change car insurance companies during your policy term or when it expires. Just inquire about any fees and potential prorated refunds for any unused coverage period. And most importantly, ensure there is no gap in your coverage even during the transition.

How often is it recommended to shop for new insurance quotes?

Reviewing your car insurance policy coverage and obtaining new quotes at least once a year is a good idea. This lets you stay informed about potential savings and any changes in policy offerings.

What should I consider when comparing insurance quotes?

When comparing the best car insurance companies quotes, look beyond the premium cost. Consider factors like coverage limits, deductibles, policy inclusions, and exclusions to ensure you’re getting adequate protection for your needs.

Will I receive a refund if I cancel my policy mid-term?

In most cases, insurance companies provide prorated refunds for the remaining coverage period if you cancel your policy before it expires. However, confirming this with your current insurer before switching to a life insurance policy is essential.

How can I compare car insurance quotes to determine if the new insurer is reliable?

To assess the reliability of a new insurer, check online reviews and any ratings from reputable sources like consumer advocacy groups or state insurance departments. These reviews can give insights into the current company’s reputation and customer satisfaction levels.

Last Updated on: December 19, 2023

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