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Insurance Cancellations in Texas

Texas insurance policies run for a set time: day, week, month, usually a year. During this time frame, you get the benefits of coverage, in the event of an insured loss. However, when you choose to change or cancel the coverage, it is important to know the process of how to cancel insurance.

Generally, there are three methods of canceling an insurance contract in Texas:

Stop Auto-Renewal: You may wait for the active policy to expire and, after that, decline to renew the policy.

Cancel in the Middle of the Policy: All insurance companies in Texas are required to refund the consumer the unused portion of premiums.

You may wish to notify your insurance agent ahead of time of your intentions to cancel the policy. While there is no set time to do this by law, it is best to notify your agent early enough so that the insurance company may commence administrative processes on the cancellation and the agent has time to find alternative coverage options for you. Early notification may be an advantage for some types of insurance in Texas.

Refusing to Renew: either by application or stopping premium payments altogether is a way to cancel an insurance policy. Although not formal, it triggers the necessary response from the insurance company that sets the cancellation process into motion. Some lines of insurance offered in Texas interpret the stoppage of payments as an indication of cancellation: others do not. Therefore, all intents to opt out of a policy at the end of the active period must be communicated to the insurer according to the specific instructions of the policy.

Some insurance plans in Texas can be purchased only during specific times of the year. Be careful, not to cancel existing coverage during the time when an equivalent replacement cannot be obtained.

Can you Cancel your Insurance Policy at Any Time?

Yes, all Texas insurance policies (of all types) can be canceled at any time. This is a right you have as an insurance consumer in the state. However, there are "best times" to cancel an active insurance policy in Texas and they include:

  • During the "free look" period: This is regarded as the "cooling off" period. During this time, newly signed-up policyholders get an opportunity to gauge the policy plan and decide if to stick with it. At the end of this time frame, they may either go on with the policy or cancel it. Free Look applies to a brand new policy and for new customers. Usually, a cancellation under the "free look" period guarantees a full refund. The length of the "free look" period may differ between insurance types. Make sure you know the length of your specific "free look" period.

  • At the end of an active policy year: Most insurance policies state that policyholders must reapply, to renew the policy annually, as an indication of intent to keep it active. Therefore, letting an active policy expire without subsequent renewal indirectly states your intention to cancel. There are different ways that insurers respond to an auto-renewal response. Find out from your agent or the insurance company about any responsibilities on your part.

There may be a reason to cancel an insurance policy while it is still active. Mid-year cancellations of an insurance policy come with a few complexities. If done in conjunction with getting better coverage, a mid-year cancellation could be more beneficial to the policyholder. It is best to speak with your agent to get professional advice on how to go about it.

If you have insurance coverage that you get through an employer, it is automatically canceled when you leave the job (withdrawal of service). It may be different, though, if the withdrawal of service is a retirement. Some employers may provide insurance coverage even after retirement, usually with life and health insurance. In this case, the employer is responsible for processing the cancellation of the policy on behalf of the individual. Check with your employee benefit representative in Human Resources.

When is it a Good Idea to Cancel Insurance?

Generally, the cancellation of an insurance policy is a good idea when you have nothing to lose and probably more to gain. That is, the decision to cancel an insurance policy should be based on a proper assessment of the pros and cons of cancellation. If unsure of what to do, it is best to speak with a Texas-licensed insurance professional before proceeding. Some reasons people cancel their insurance policies are:

  • Relocation: If you are moving out of Texas and cannot transfer your insurance policy to your new state of residence, cancellation may be the way to go. Confirm this with your insurance provider, as some have partnerships or offices in other states.

  • Life-changing events: The loss of a job, a change of career or business, death of the insured, marriage, or divorce are some of the changes that may trigger the consideration to cancel an insurance policy.

  • The need for a lower premium rate: A policyholder may wish to lower the current premium rates for many personal reasons. A caveat to this is to speak with an insurance agent before opting for policy cancellation. In many cases, switching insurance policies or modification of endorsements may result in a lower premium issue.

  • You found a better fitting insurance package: The insurance industry in Texas is highly competitive. As more products emerge, the public gravitates towards the best packages with the most favorable coverages and pricing models. An insurance policyholder may desire to get a more competitively positioned and priced plan from the same or another insurer. You should cancel the previous plan to avoid double payments for the same kind of coverage.

If you have questions, seek help from Texas-licensed insurance professionals.

When is it a Bad Idea to Cancel Insurance?

As far as it goes in the Texas insurance industry, state and federal regulations largely favor consumer interests. However, the cancellation of policies by an insured is not an encouraged practice. For one, most systems, businesses, ownerships, and operations in Texas must meet a minimum insurance requirement at any point in time. Opting out of an insurance policy may have more consequences than a mere refusal to auto-renew or a mid-year cancellation. It could mean legal troubles as well. Here are a few scenarios where canceling an insurance policy may be a bad idea:

  • When there is no backup coverage of the insured risk: Certain items (homes, autos, health, etc) need continuous insurance coverage, because it's impossible to predict when this type of coverage will become needed. It is a bad idea to cancel such insurance prior to obtaining a replacement coverage.

  • When the coverage is legally mandated by law: As stated earlier, having policy coverage is a must for many systems and infrastructures in Texas. For example, all vehicle owners must carry at least liability insurance coverage at all times. It means that opting out of an auto policy without another coverage in force may put you at risk of legal action. It could mean heavy fines or even a jail term for the approximately 20% of Texas vehicle owners, who are uninsured or underinsured.

  • Failing to transact the cancellation process of a policy according to the contract terms: Each line of insurance product comes with terms of opting out in the policy. Some insist on specific rules, such as the requirement to provide a prior notification before declining an auto-renew. If violated, it may translate to higher cancellation fees for the policyholder.

  • Canceling after failing to meet prior financial obligations: also known as skipping out while pending premium payments still exist. In other words, when you owe money to the insurance company. It is a bad idea to cancel a policy if you have enjoyed maximum benefits without fulfilling premium payment obligations. You may lose whatever benefits or privileges you have, and your credit score may be affected if the insurer passes your debt to collection. Always read the 'fine print' of your policy, that outlines what you lose when you cancel a policy prematurely.

Other defaulting actions may be a refusal to cooperate with an investigation in the event of a liability or refusal to provide certain information as required by the insurer.

If you are planning to cancel active insurance coverage, make sure to discuss the process and the repercussions of this decision with a licensed insurance professional.

What Happens if I Cancel my Insurance?

When you cancel a Texas insurance policy, you lose coverage for the insured object, be it a business, personal property, or a human being. Insurance cancellation leaves the insurable risk vulnerable to a possibility of a loss. Unless the policyholder switches to another coverage, they risk bearing the full weight of the liability. Liability here could be in the form of financial loss or legal implications for failing to have insurance coverage. While it may seem basic and easy to resolve this by getting on another insurance policy plan as soon as possible, more consequences may follow if you cancel the policy in the wrong way.

For example, when a policyholder opts out of insurance prior to expiration, they become a high-risk client. Early cancellations may risk losing credibility with subsequent insurance companies. It may be more difficult to find other insurers to provide coverage. If they eventually find one, the insurance company may assess higher premium rates because of the "high-risk client" status. In any case, an intending policyholder must declare previous policy cancellations as part of the requirements for signing up for a new plan.

If the insurer cancels or decides to non-renew your policy, they are usually required to allow you a set period of time to obtain coverage elsewhere, before canceling coverage outright. The timeframes may be different, depending on the type of insurance.

Always discuss your insurance questions with qualified and state-licensed professionals.

Does it Cost Money to Cancel Insurance?

Yes, insurance cancellation may costs money; it just depends on what the cause of payment is. If you choose to cancel your policy before the expiration date, some insurance companies may charge a cancellation fee to facilitate the administrative process. Otherwise, you do not need to pay a cancellation fee if you opt-out of policy renewal. It costs much more to cancel an insurance policy when it becomes mandatory to have another one in force before cancellation.

A good example of this is the Texas auto insurance policy, where the state's law requires that at the very least a liability policy must be in place for all driven vehicles at any point in time. Also, it would cost money to opt out of insurance coverage if you have pending past-due payments.

Do you Get a Refund if you Cancel Insurance?

It depends. Some lines of insurance in Texas give a refund of premiums either in whole or on a pro-rata basis. Usually, you get the refund of all unused premiums. The amount of refund depends on:

  • Insurance type,

  • How long your policy has been in force,

  • The amount of claims that you have submitted so far, and

  • How much premium you have already paid.

Cancellation early in the policy year for a newly insured policy is likely to yield a full refund, especially within the free-look time frame. Additionally, the terms of the agreement in the contract largely influence how much refund the insured gets after the policy cancellation. There may be nothing to refund if the auto-renewal is not activated, especially if the insured has enjoyed benefits commensurate with the total value of premiums paid.

What Happens if I Don't Pay my Insurance Cancellation Fee?

If you are required to pay a fee as part of the notice of policy cancellation process, you must do so. If you fail to pay the fee, the insurer may deduct it from whatever refund you were meant to get. The non-payment can also stall the cancellation process, leading to unnecessary complications. Otherwise, the insurer may take the initiative of collecting the cancellation fee in one way or another, including placing the debt into collections. This usually negatively affects your credit rating. If your cancellation method is opting out of an auto-renewal, there is usually no need for a cancellation fee unless it is in the agreement.

Automatic Insurance Renewal

How Do I Stop Automatic Insurance Renewal?

In Texas, most insurance policies are required to auto-renew unless the insurer receives notification from the policyholder to do otherwise or there are material changes that necessitate canceling the policy. In other words, an insurance policy restarts a new tenure unless it is actively interrupted. If you wish to stop the auto-renewal of an insurance policy in Texas, here are some helpful tips:

Send a notification to the insurer well ahead of the expiration date. You can call the insurer or send them a request to cancel the renewal process through the email or mail. Alternatively, you may ask an insurance agent, through whom you purchased the coverage, to help you with stopping the automatic renewal. When the insurer receives your cancellation notice, in return you get a notification of receipt and any other paperwork that must be filled out, to make the cancellation official.

During the cancellation, an insurer would be interested in finding out why you are canceling the policy. It is best to be open with the insurer on why you are opting out. In some cases, a modification of the coverage or switching insurance policy may be a better option. If you insist on opting out, be sure to get advice from an insurance professional on how to go about it.

Can you Dispute Auto-Renewal of Insurance Policy?

Yes, in some instances. Generally, most insurance companies in Texas auto-renew policies at the end of each policy year. However, where there are Material Changes, it becomes imperative for an insurer to notify the insured about them. Material changes refer to alterations in an existing policy that may reduce coverage, change its terms and conditions, or alter the insured's duties upon renewal. According to the Texas Administrative Code, a notice of a material change is not necessary if it increases coverage. If it increases premiums, then it becomes mandatory to send a notification. Otherwise, a policyholder can dispute auto-renewal.