Cancelling Auto Insurance When You Sold Your Car(s)

This blog post explains how to cancel your auto insurance on a car you’ve sold and how to avoid being responsible for an auto accident after you’ve sold the car. Unexpectedly owing money on a canceled insurance policy is a common situation leading people to feel they have been ripped off by their insurance company. Here is what you need to know to avoid unexpected bills on canceled insurance, which may damage your credit score, and how to avoid one common insurance mistake that often leads to much higher auto insurance rates.

1. Make sure the state knows you are no longer the owner of the car.

Have you ever been contacted by your state’s department of motor vehicles, asking for your insurance information on a car you’ve sold long ago, because of an accident occurring after you sold the car? I hope not, but it was not unusual for me to get calls from customers with this exact problem. When you sell your car, and you allow the new buyer to drive away with your license plates on the car you sold, you are still the registered owner of the car, and can be found liable for its use.

Proper procedure to change registered ownership & legal responsibility of a vehicle may vary by state, from requiring new owners to get their own plates to filling out a form to change the registration into the new owners name. Don’t trust the new owner to change the registration on the car you sold. Before you sell the car, contact your state’s DMV and find out what you need to do make sure your state knows when you are no longer the owner and will not hold you responsible for the use of the car you sold. It may be as easy as making a phone call to the DMV or signing a release of liability due to sale of the vehicle.

2. Avoiding problems & costly mistakes when canceling insurance on the car you sold.

Canceling your auto insurance when you have sold your car, or cars, is fairly straight forward for the insurance company to handle for you.

However, if you no longer have a car, and will be getting another car in the next year, canceling your auto insurance, & starting a new auto insurance policy, several months later, when you have a car again, can cost you a fortune in higher auto insurance rates. I will blog tomorrow, to explain what you may be able to do to avoid this costly situation.

For now, here is what you need to do to avoid problems & unpleasant surprise bills, when canceling auto insurance due to the sale of your car.

The most important thing to do, when you sell your vehicle(s), is to get a bill of sale (or copy of the transfer of title) identifying the vehicle sold, the new owner, the seller, and the date sold. If you have this document, you should be able to cancel your auto insurance policy back to the date after the sale, even if you forget about it, and keep paying for your auto insurance for 3 months after the sale.

When your auto insurance company has a copy of the bill of sale, proving the sale date, the insurance company will cancel the policy the day after the sale, and charge you for auto insurance only until the day you sold your car. You will get a refund of your money if you continued to pay for auto insurance for coverage beyond the sale date.

For example, you have a 6-month auto insurance policy costing $600, which you paid in full on January 1st. 3 months later, on April 1st, you sold your car. A few weeks before July 1st, you get your auto insurance renewal bill, and you realized you forgot to cancel your auto insurance when you sold your car. All you need do is call the insurance company, or stop by your agent’s office, present them with a copy of the bill of sale, and explain the situation to them. In this example, you would get a refund of approximately $300.

Usually, insurance companies require a request to cancel an auto insurance policy to be in writing, & signed by the person with the first name on the insurance policy (for example, an auto insurance policy in the name of a father and son, reading “John Smith and Frank Smith” as the named insured on the policy, must be signed by John Smith, no matter if he is the father or son).

Most auto insurance companies will allow you to give them the written & signed cancellation request by fax, e-mail, mail, or by delivering it in-person to your agent. However, some insurance companies may allow policy cancellation requests by phone. Insurance company procedures vary from company to company, so be sure to ask your agent or insurance company how to cancel your auto insurance policy.

Always keep your own copy of the cancellation request & bill of sale. Also, take notes of what was mailed when, and to which office, or fax confirmations & e-mail replies.

Follow up with a phone call, if faxing or e-mailing your cancel request, to confirm your request to cancel and/or bill of sale was received & sufficient to cancel on the day you want your auto insurance canceled.

When you mail the cancel request directly to the insurance company, if you don’t have a local agent to receive the cancel request , allow 10 business days from the date of mailing, before calling, to give the insurance company enough time to receive and process your mailed cancel request.

If you mailed the cancel request to your local agent’s office, allow a business day or two beyond the normal mail delivery time for your town, to follow up with an e-mail or phone call to your agent’s office, to make sure they received your request.

Follow up with a phone call, 10 business days after the day your agent or insurance company received your cancel request, if you have not received written confirmation by mail your policy has been canceled. Ask the insurance company when you can expect to receive confirmation of the cancellation, and ask if any premium is being refunded.

If you have to call a second time, if you still have not received confirmation of the cancellation of your auto insurance policy, ask to speak to a supervisor, and advise you will file a complaint with your state’s department of insurance, if you feel you are getting the runaround.  If the insurance company has received a properly completed & signed cancel request, the insurance company must cancel the policy within a reasonable time.

Each time you speak with the insurance company or agency, note the name of the person to whom you spoke, what was said, the date, & time of the phone call.

When you receive the confirmation of the cancellation of your auto insurance in the mail, check the cancel date to make sure it was canceled as of the date requested.

Most of the time, cancel requests from customers are handled quickly and without a problem. But problems do happen occasionally, so you want to keep on top of your agent and/or insurance company, to make sure they have received your cancel request,  cancel it within a reasonable amount of time, cancel it on the right date, and bill you or refund you properly.

Most auto insurance companies bill you for insurance coverage in advance, so if you are current on your auto insurance bills, you may not owe anything if you sell your car & cancel your policy.

When you contact your insurance company or agent to cancel your auto insurance, have them estimate any refund or bill due once the policy is canceled. Make sure what they tell you about your billing makes sense to you. Your agent or insurance company does not know the exact amount owed, or the exact amount of the refund, until the cancellation is processed on their computer system. Take note of what the insurance company or agent tells you. Once your policy is canceled, and you get your final billing statement, or refund, contact your agent if the bill is more than estimated, or the refund is less than expected.

Some insurance companies charge cancellation fees if a customer requests to cancel their auto insurance before it renews, but these fees usually don’t apply if your vehicle is sold. However, when you contact your insurance company to cancel your policy, ask about a cancel fee, and ask if it is waived if the the vehicle is sold.

Caution: If you pay your auto insurance with an automatic payment plan, such as automatic deductions from a bank account, or recurring charges to a credit card, your automatic payment plan will sometimes need to be changed to direct bill before your auto insurance can be canceled. Don’t confuse any notice mailed to you regarding the change in your billing method, as cancellation of your policy. Deductions from your account may continue for a brief time after your policy is canceled. I will devote a separate blog post to avoid getting ripped off when canceling an insurance policy on an automatic payment plan.

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