No pro-rata refund if car cover is cancelled

CANCELLING your car insurance appears to be something of an art.

Exactly when you do it is vital. If you cancel one day after a month is up you will immediately incur another month's charge. And if you insure through a broker or intermediary, as Dominic Pasqua found out, you will not necessarily be informed of this.

More importantly, brokers do not always tell clients that they will be charged much higher short-period rates if they cancel within a year.

Since brokers often do not send out policies for weeks after the insurance is taken out, there is no small print to check.

Another thing to remember, if you use brokers and intermediaries, is that they have to let the insurance company know of your cancellation. If they delay in doing so, or do not send the relevant documentation quickly, you could be in for even more of a penalty than you thought.

Dominic Pasqua has owned a Golf GTi for six years. For the last three years he has been insured through the AA. But when his fully comprehensive insurance jumped from pounds 380 to pounds 740 last year, he decided to change this to third party, fire and theft and try to sell the car. His premium was reduced to pounds 285.

'When I changed the insurance I told the AA the reason for doing so and that I wanted the cheapest premium because I was intending to sell the car,' he said.

'At no time did they tell me that I would have to pay short- period rates. I paid the initial deposit of pounds 85.50 and agreed to pay the rest of the insurance by four instalments.

'The first thing I did when I sold the car was to ring up the bank cancelling the instalments.

'I rang the AA to let them know I had sold the car. They still didn't tell me I was going to have to pay more than pro-rata and since they hadn't sent me a cover note or policy there was no way I could read the small print.

'I then wrote to them cancelling and they asked me for the cover note - which I had never had - and asked me for a further pounds 57, making a total of pounds 142.50 for a month's worth of insurance.

'I was furious. I thought I was being ripped off and have refused to pay anything more.'

Mr Pasqua says the AA was very unhelpful and has still not explained why it was asking for more money. The sum of pounds 142.50 is 50 per cent of the insurance. The AA says this is what London & Edinburgh, the insurer, charges for up to three months.

If the policy had been cancelled within two months Mr Pasqua would have received a 60 per cent refund. Within one month the refund would have been 70 per cent. But this is still less than other companies are offering.

All insurance companies calculate their refunds slightly differently. For example, Sun Alliance charges 20 per cent of the total premium for one month, 30 per cent for two months, 40 per cent for three months and so on up to 90 per cent for eight months. After that it charges the full premium.

Commercial Union staggers it more so that you pay 85 per cent at nine months, 90 per cent at 10 months and 95 per cent at 11 months.

A spokesman for the Association of British Insurers says that, as a rule of thumb, if policyholders cancel insurance they will be charged roughly two months more than the period they have been insured for.

As most policies are cancelled when clients have only a cover note, they cannot check the policy for penalties. The ABI recommends checking direct with the insurance company what its policy on cancellation is. It warns that there have been cases where brokers do not refund as much as is returned by the company.