How Much Are Auto Insurance Cancellation Fees in Ontario?

By Daniel Schoester | Published on 17 Jul 2023

a car with an umbrella
Types of fees for car insurance cancellation (Ontario)

An auto insurance cancellation fee is a fee the insurance company charges when you cancel your auto insurance policy before its expiration date. Generally, there are two main types: pro-rata and short-rate cancellation fees.

Short-rate cancellation fees are more common. They are calculated by applying a certain percentage to the remaining contract balance. Some companies may use pro-rata cancellation, which is more friendly to you. A pro-rata cancellation refunds you for the remaining contract balance. However, each insurance company has a different approach to cancellation fees, so be sure to review the terms and conditions of your contract. 

Furthermore, it’s best to coordinate your following policy before your existing policy ends. This is because driving without car insurance is illegal in Ontario. You will also be liable for any damages caused without coverage. This article will explore these topics to comprehensively understand Ontario’s auto insurance cancellation fees.

What to Consider Before Cancelling Your Auto Insurance in Ontario

Before delving into the details of these cancellation fees, let’s take a moment to understand the importance of auto insurance. Auto insurance provides financial protection in case of accidents, theft, or damage to your vehicle. Car insurance in Ontario is legally required, ensuring you are prepared for any unforeseen circumstances. However, if you decide to proceed, it’s essential to consider these factors:

Operating a motor vehicle without valid insurance is illegal and can result in severe penalties. The FSRAO has deemed it mandatory to have insurance while driving in Ontario. Failing to meet this requirement can result in license suspension. Ensure you have your insurance policy lined up before cancelling your existing policy. However, if you don’t plan on driving, you can cancel your current policy without needing another.

b) Future Insurance Needs

Insurance companies may deem you a risky driver if they see a gap in your insurance coverage. This can result in the need for high-risk auto insurance. Before cancelling your existing policy, it’s essential to consider if you will need auto insurance in the future and how that could impact the cost. Again, activating your following insurance policy before cancelling your existing one is worthwhile.

c) Financial Implications

Finally, there are two financial implications to consider. Of course, the primary one is cancellation fees. However, insurance is meant to cover damages in an accident. If an accident happens without insurance, you may have to cover the cost of repairs, medical bills, and other related expenses. Additionally, if your car is damaged or stolen without valid insurance, you will not receive compensation from the insurance company.

Two Types of Auto Insurance Cancellation Fees

When cancelling your auto insurance policy in Ontario, there are typically two types of cancellation fees: Short rate and pro-rata. Each company generally has a different approach. However, this section will explain the fees to empower your understanding.

1. Short Rate Cancellation Fee

Short-rate cancellation fees are often based on a percentage of the unearned premium remaining on your policy. The percentage is typically between 1% and 8%, but it can vary depending on your insurance company. This means that the longer you have held your policy before cancellation, the smaller the fee, as the insurance company has earned more of the premium.

For example, assume you are eight months into a 12-month policy worth $1,200. You have four months of unearned premiums, or $400 [= 4* (1200/12)]. If your short-rate fee is 6%, your cost for cancelling early would be $24 (= 6% * 400). As your unearned premiums increase, so will your cancellation fees. Furthermore, some insurance companies may increase the percentage fee for early cancellations. 

However, short-rate cancellation fees are calculated based on a formula determined by the insurance company. Therefore, it is essential to review your policy or contact your insurance provider for specific details regarding the calculation of this fee.

2. Pro-Rata Cancellation Fees

Some insurance companies use pro-rata cancellation. You can think of this as a refund because it’s a return of the unearned premium; you receive a refund for any unused portion of your policy. For example, you have held a 12-month policy worth $1,200 for eight months. Your unearned premiums sum up to $400, and your pro-rate refund would equal that amount.

However, you generally receive a pro-rata cancellation when the insurance company ends your policy. This can be due to non-payment or any other reason outlined in your policy. While you receive the refund, the cancellation will appear on your car insurance history. Having another insurance provider cancel is generally viewed negatively by insurance companies. This can impact your ability to receive car insurance and may significantly increase your costs in the future.

Parked cars that are protected with car insurance in Toronto, Ontario

Five Factors Affecting Auto Insurance Cancellation Fees

Several factors can influence the amount of your auto insurance cancellation fee in Ontario:

FactorEffect on Cancellation Fee
Insurance companyDifferent companies have different policies and fees
Policy durationLonger policies typically have lower cancellation fees
Reason for cancellationMay not directly affect fees, but may affect options available
Policy-specific termsSome policies have clauses or provisions that affect the fee
Cool-off periodSome companies offer a window to cancel without fees

1. The insurance company

Different insurance companies may have their own set of rules and criteria for determining cancellation fees. Some companies may have pro-rata refunds, while others charge a short-rate fee. Additionally, short-rate fees can vary between insurance companies. It’s best to compare car insurance before deciding on one provider. 

2. Policy Duration 

Short-rate cancellation fees generally decrease over time. This is because you have provided more income to your insurance company. Therefore, you may be subject to lower fees if you have had your policy for an extended period.

3. Reason For Cancellation

While the reason for cancellation may not directly impact the cancellation fee, it is still important to communicate your intentions with your insurance provider. They may offer alternative solutions or options that can minimize the financial impact. For example, they may offer a grace period or suggest adjusting your coverage instead of cancelling altogether. Some companies may even provide a customer retention discount.

4. Policy-Specific Terms

The terms and conditions outlined in your insurance policy can also affect the cancellation fee. Some policies may have specific clauses or provisions influencing the cancellation fee amount. For instance, cancelling before that period may incur a higher fee if your policy includes a minimum term commitment. It is crucial to carefully review your policy to understand any clauses or provisions that may impact the fee.

5. Cool-Off Period

Some insurance companies provide a cancellation window to avoid cancellation fees. For example, suppose you cancel your policy within a specified cooling-off period, usually a few days after purchasing the policy. In that case, you may be entitled to a full refund without any cancellation fees. However, this can vary depending on the insurance company and the terms and conditions of your policy.

How to Avoid Auto Insurance Cancellation Fees

While it may not always be possible to avoid cancellation fees entirely, there are steps you can take to minimize or eliminate the fees. This section will discuss the best options to avoid or reduce cancellation fees.

OptionWhat to do
Review your policyRead the terms and conditions carefully to understand the cancellation policy and any potential fees.
Time your cancellationCancel at the end of your policy term to avoid higher cancellation fees.
Communicate with your insurance providerLet your insurance company know that you are cancelling and discuss your options. They may be able to offer suggestions or alternative solutions that can help you avoid or reduce cancellation fees.

Review Your Policy

One of the first things you should do is review your policy thoroughly before proceeding with cancellation. Take the time to understand the terms and conditions surrounding cancellations and any potential fees that may apply. By clearly understanding what you’re getting into, you can better prepare yourself and avoid surprises.

Timing is Key

Timing is also essential when it comes to cancelling your auto insurance policy. Planning your cancellation can help you avoid unnecessary charges. Avoid cancelling in the middle of your policy term, as this may result in higher cancellation fees. Instead, try to time your cancellation at the end of your policy term before renewing.

Communicate With Your Insurance Provider

Communication is key when it comes to dealing with your insurance provider. Once you decide to cancel, you must inform your insurance company and discuss your intentions. By having an open and honest conversation, they might offer suggestions or alternative solutions that can help you avoid or reduce cancellation fees.

They may find a way to adjust your policy to suit your needs without incurring additional costs. This can include reducing your premiums by increasing your deductible. They may also offer discounts for bundling with home insurance.

The Bottom Line

Cancellation fees are an expected and sometimes unavoidable expense when cancelling auto insurance. However, you can minimize or avoid these fees by thoroughly reviewing your policy before cancellation, timing the cancellation at the end of your policy term, and communicating with your insurance provider to discuss potential solutions. By taking these steps into account, you can save money on unexpected costs while still getting the coverage that best suits your needs.

Daniel is an expert on travel, finance, and SEO. He received an Honours BBA (Finance) from Wilfrid Laurier University, then started his career with WOWA. Here, he learned various SEO tactics that were instrumental in quadrupling monthly traffic to one million views. Now the founder of Croton Content, Daniel helps financial companies scale through evergreen content. Aside from Hardbacon, notable clients include Forbes Advisor, WealthRocket, and Hellosafe. Daniel loves to travel when not working. Although based out of Lisbon, Portugal, some of his most adventurous destinations include Rio, Cairo, and Istanbul.