Cancelling car insurance mid term

giraffe546

My son is a new driver, insurance as you know is big expense.  He is paying a large amount on direct debit, he wants to cancel.  Thing is the insurance company says he must pay off the entire 6 month remaining on the finance agreement and once paid the insurance refund is £0,, why not six months less admin fee? Is this normal!

Peter999_2

Yes.    You pay the full 12 months at the beginning of the policy and the company offers you a loan over 12 months to pay off that cost.     Unfortunately you cannot cancel the loan without paying it off first.

giraffe546

Hi Peter, thanks for quick response, So he pays off the finance company and the broker also receive all their dues in full but he still has no entitlement.   Sounds completely unreasonable, seeing as he initially spoke to them , they said £200 refund, called back 10 minutes later they said £12 refund. And finally before going ahead, Zero refund!  Sounds like they are pulling numbers out a hat.

huckster

Cancelling a 12 month Insurance mid term is never a good idea. It triggers the cancellation terms in the Insurance. The loan has to be paid off and the Insurers apply cancellation terms meaning in most cases zero refund will be due. So might as well let Insurance just run for 12 months.

Quite a lot of people in this situation just cancel Direct Debit payments. As a consumer credit agreement would have been issued, once payment not made, the loan company will mark default on credit record.  Very unlikely the Insurance will take it to Court. Often the default on credit records for 6 years will cause enough damage.

Isthisforreal99

What does the T&C's say about cancellation fees etc. Have you looked into the possibility of getting a settlement figure from the finance provider?

dunstonh

 So he pays off the finance company and the broker also receive all their dues in full but he still has no entitlement.   

He took out a loan to pay for the insurance.  It is generally recognised (including the FCA and FOS) that the bulk of the cost or arrangement is at the start.     So, it is never exactly pro-rata.     Plus, often the payment period is not exactly 12 months.  It can be 10 months.  So, what is being paid on the loan doesn't exactly match the cancellation terms on the insurance.

 Sounds completely unreasonable, seeing as he initially spoke to them , they said £200 refund, called back 10 minutes later they said £12 refund. And finally before going ahead, Zero refund!  Sounds like they are pulling numbers out a hat.

Some items that can be bolted on to the car insurance are non-refundable.    So, it could be down to that.  However, if a broker was used, you have multiple levels.  i.e. the cancellation terms of the broker, the cancellation terms of the insurer and the cancellation terms of the finance and whether there were any non-refundable things that are left to pay for.

its not unreasonable but a consequence of effectively taking out a loan to pay the car insurance.

giraffe546

Am I misunderstood, the finance agreement has been settled in full for the remaining term, but the broker still not willing to issue a refund for the remaining term.

MeteredOut

giraffe546 said:

Am I misunderstood, the finance agreement has been settled in full for the remaining term, but the broker still not willing to issue a refund for the remaining term.

I suspect the various fees are wiping out the refund for the remaining term. OP needs to ask for how the "zero refund" is calculated.

singhini

Sounds like you have "Insurance Finance"   (which is slightly different to Insurance).

Im no expert but i think it might be:-

The insurer sells a 12-month policy (for example).

A third-party finance company pays the insurer the full premium upfront.

Your son then repays the finance company monthly — with interest and fees — through a credit agreement.

So, even if he cancels the policy, he’s still under a loan contract with the finance company. That’s why they may say he must “pay off the full remaining balance.”

Also insurers often apply:-

Short-term cancellation rates (not pro rata), meaning they keep a larger share of the premium if you cancel mid-term.

Non-refundable fees (admin fee, setup fee, etc.).

As i said, i'm no expert but having read some of the comments above, this would be my take on it. 

giraffe546

Thanks for all advice, It's unfortunate, we never considered a third party lender was involved until now - clearly we didn't read small print.  He can't afford to keep the insurance going, he has a black box fitted, unexpected circumstance has seen a rise in mileage and if he stays they will quadruple the cost.  An alternative policy is so much cheaper so he has now cancelled the old insurance and paid the remaining balance via the insurance company (using another loan provider - me!).  But with no refund, so he's just not as well off now as he would have hoped.

luci

giraffe546 said:

Thanks for all advice, It's unfortunate, we never considered a third party lender was involved until now - clearly we didn't read small print.  He can't afford to keep the insurance going, he has a black box fitted, unexpected circumstance has seen a rise in mileage and if he stays they will quadruple the cost.  An alternative policy is so much cheaper so he has now cancelled the old insurance and paid the remaining balance via the insurance company (using another loan provider - me!).  But with no refund, so he's just not as well off now as he would have hoped.

Hindsight is a wonderful thing, but you will aware of how it works and what to look out for in future. I hope it works out OK for your son. He's lucky he had another loan provider he could turn to!