Not all of your life changes take place at a convenient time. When you make a change to your auto insurance, you might need to do it in the middle of your billing cycle. If the change you make impacts your insurance cost, then your insurance company will prorate your premium. Your premium is how much you pay for your insurance policy.
Depending on the change you make, your insurance company will raise or lower your premium for the remainder of your billing cycle. If you’re ending your policy, they will refund any overage that you’ve paid.
TL;DR (Too Long; Didn't Read)
Prorating for auto insurance charges means that your premium amount gets adjusted proportionally for policy changes like upgrades, downgrades and cancellations. Depending on the change, you may owe more money or get some back.
Prorating Policy Changes
If you make significant changes to your auto insurance policy that result in a change to your premium, your insurance company may prorate your premium for the remainder of your policy.
For example, if you have basic coverage on your car, you may decide to upgrade to comprehensive coverage. You’ve already paid $600 for six months of basic coverage, and you have three months left on your policy. If the additional coverage is an additional $300 for six months, then you would pay $150 to cover the last three months on your policy. When you pay your next six months, you would pay the new total of $900.
If you downgrade your coverage, then your insurance company would owe you a refund for any overage you’ve paid.
Starting a New Policy
If you’re starting a brand new policy with an insurance company, you won’t have a prorated premium. If you’re transferring your coverage from an old car to a new one, but you're staying with the same insurance company, you might have a prorated premium. This will happen if there’s a change in the cost of your insurance.
A newer car may be more expensive to insure. If it’s a brand new car, then your insurance company may require that you carry more coverage than you currently have. If you’re shopping for a new car and know what you want, you may want to contact your insurance company to find out how the purchase will change your premium.
Prorated Refunds for Canceled Policies
When you cancel your policy before the end of your billing period, you may be entitled to a refund, especially if you pay quarterly, semi-annually or annually. Use caution when canceling your auto insurance policy, though. Most states require that you carry some form of auto insurance, so make sure that if you’re switching policies, the new one is effective as soon as you cancel your old one.
Depending on the insurance carrier, you may need to make your cancellation request in writing. Once they process your request, they will send you a check for any premium refunds that are due.
Melinda Hill Sineriz is a freelance writer with over a decade of experience. Her work has appeared on Pocket Sense and Sapling. She specializes in business, personal finance, and career writing. She has worked in insurance sales and financial planning, helping families to manage their money and prepare for the future. Learn more about her and her work at thatmelinda.com.