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Should you cancel your auto insurance?

Stanley Weiser once said "A fool and his money are lucky enough to get together in the first place."

We can all feel that now that times are tough. Red notices are piling up. You stopped opening the bills. Collectors are calling. What to axe from your budget? There are several things to consider before you cancel your auto insurance.

1st, make sure you are paying the lowest premiums by comparing prices online. Enter your zip code above and compare coverage in your State with many carriers.

2nd, when you cancel, the insurance company will electronically send California a notice saying you no longer have insurance. If they see your registration still active (you do not sell the car or re register the car as inoperable), they will most likely suaboutspend the registration. And that same automated system may send out a notice requesting proof that you were re-insured.

3rd, before you take the chance of canceling your car insurance, is there anything else you don't need? Cable TV? Football tickets? Mini vacation? Look for other non nessesities you can cut first.

Unintended consequences

Uncovered damages from an auto accident may not be dischargable in bankruptcy (California) and judgement debtors can call you into an exam hearing every 6 months. They can order you bring all your bank statments, current tax return, and other financial documents. Legal judgments in California last 10 years and can be renewed forever.

Short-Rate Cancellation

One last goodbye pop. When you cancel your policy prior to the expiration date the earned premium charged would be more than the pro-rata (a fancy world for "in proportion") premium. Generally, the return premium would be approximately 90% of the pro-rata return premium. In California, the insurer may also establish its own short-rate schedule, in order to get more money out of departing customers. Typically, insurers will charge $50 for the privilege of canceling.

In English: Policy cancellation fee.

Do you think you’re a good safe driver? Many do, but are not! Only the most defensive, broke, and considerate drivers should even think about driving without coverage, out of necessity (not choice). If you are broke, read my article if you must cancel your auto insurance.

Is your car fully paid for? In most states when financing a vehicle, you’re required to carry full coverage insurance (comprehensive and collision). If you do not have this, technically, you'd be in default of the car loan, but is the finance company going to care? I dunno. They might call you up and say means things. But probably request your reinstate your coverage to protect their interest / money.

Personal story: I was about 20 and didn't think I needed car insurance. I hit someone (my fault) and ended up paying $7000 for that accident claim. Bad move.

I recommend before canceling anything, get comparative auto insurance quotes. You could find a carrier much cheaper, maybe you save some money and avoid the stress of driving uninsured and having an accident.

If you get into an accident without insurance - in some states, you cannot collect punitive damages if you are an uninsured driver. Also the portion of your car insurance is for legal defense. Unless you are an auto claims lawyer, you probably won't be capable of defending yourself against a seasoned auto claims lawyer working for either the other party and their car insurance company.

What insurance to cut?

There are inexpensive ways to reduce your car insurance premiums.

Comprehensive coverage if you have an older car or yours is paid off.

Increase your deductibles to $500- $1000. Lower your limits. Tell the car insurer you're married (you really should be in case you get into an accident) or have a domestic partner. BTW, they'll request their drivers license info, insurer, make of car, etc. Also misstatements to your insurer could leave you uncovered.

Collision coverage, you will have to pay to have your car towed to the body shop since your car will not be covered in an accident.

What insurance to keep?

Uninsured motorists liability coverage functions as life insurance (for your survivors) if you are killed in an accident.

Theft. Driving without insurance means driving without theft coverage. Car jackers have bills too. You might be next. Also check to see if your car is one of the most stolen.

Car insurance contains a medical payments option that can be used for your medical bills in case of an accident, even if you don't have regular health insurance. Look at the number of medical bankruptcies, many from auto accidents.

Discretionary Items

There may be other things you can sacrifice, like Cable TV, reduce your cell phone minutes, don't buy lottery tickets, reduce eating out, etc.

Should you cancel your auto insurance? - Not if there are other discretionary items you can cancel.

My best advice I can give you to cheapen your auto insurance is to improve your credit, don't pimp your ride, and clean up your driving record. Many auto insurance sites are just designed just to get you into a policy or resell your personal info to many agents. My site is full real world of tips you can use, without the weird financial language.

In review:

• The DMV will find out;
• Your registration will be suspended;
• Undercoverd judgments and follow you around like a psycho ex;
• Lower your limits;
• Shop carriers on; and
• Cut other expenses first.

Written by Craig J. Casey

Financial Writer helping people with their insurance problems on the net since 1998.

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