Canceling an insurance policy generally requires a signature, according to Emily Delbridge for About.com. Policyholders should mail, fax or submit the cancellation in person. In some cases, it is possible to cancel by phone. The new insurer may also be able to cancel the previous policy by request.
While many insurers cancel policies for nonpayment, there are pitfalls to depending on this method of cancellation. Delbridge indicates that many policies are on automatic payment schedules. As a result, the policy automatically renews, and the company debits the holder's checking account for the fees. While most companies eventually refund the premium upon proof of identical coverage from another company, canceling before renewal eliminates the need to ask for a refund.
Many insurance companies offer an automatic grace period before the policy cancels for nonpayment. If the policyholder eventually pays the policy, the grace period ensures he has coverage without any gaps. If the policy eventually cancels, the policyholder sometimes receives a bill for the extra days of coverage, indicates Delbridge.
Canceling a policy also leaves a good business impression, explains Delbridge. Individuals who compare rates sometimes find a previous insurer to offer a better rate for the same coverage a few years later. Having closed out the previous policy relieves the awkwardness sometimes experienced when one needs to return to an agency.