Cancelling car insurance mid term

MyRealNameToo

singhini said:

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. 

More likely it's a broker than an insurer... a broker has to pay the premiums in full to the insurer within 28 days of inception irrespective of if they themselves have been paid or not. If you are a massive firm you can afford to lend the money yourself and therefore you get the benefit of the interest rate the customer pays. 

If you are a smaller broker or just dont want credit risk on your books etc you can use an external finance company who will give you the money up front to pass on to the insurer and then collect the premiums over time from the insured with the interest rate as their profit. 

It technically makes little difference if it's financed internally or externally, there is still a credit agreement signed, still interest to be paid etc. The slight difference is that external finance firms tend to be more on the ball with debt given this is their sole source of income whereas a broker or insurer have other income streams and ultimately can void the policy for non-payment as a way to limit their losses. 

In addition to the charges you mention there is also the fact that add on policies (eg legal expenses, breakdown etc) are often non-cancelable once the statutory cooling off period runs out when bought via a broker so the future premiums for them will be deducted from the settlement in full.