# Caution - little or no refund of premium on sale of car & policy cancellation



## Jim27 (Jul 1, 2004)

Just one thing to be aware of, people.

Many of us run more than one vehicle, meaning that if you decide to move on to a different car you may be in no rush to purchase said car once you've sold your previous one.

This means that, unless your timing is impeccable, you will probably be part-way through you annual insurance policy when you dispose of your vehicle. Running a second car, you may now intend to wait and watch for the right 'next' car to come along.

This is where many people would expect to be able to call their insurer and say "I've used 3 of my 12 months on the policy - I'd like to cancel and have 75% of my premium back please."

There are, generally, three approaches an insurer will take:

1 - Pro-rata return of premium. This is the best situation. If you've used 1/4 of the policy term they refund 3/4.

2 - Short term rates. If anyone's ever tried to get a quote for a single day of insurance on a car they'll know that it's never, ever anywhere near 1/365 of the annual cost. This is because the shorter the term, the higher the risk is rated. So you could be paying almost the same for 12 months of cover as you would for 4 months. When you call asking for a partial refund they will recalculate your insurance on the short-term rates which are generally considerably higher than 12 month rates. So you may have only used 1/4 of your policy term but you may only get 1/10 of your premium back.

3 - No return of premium, no short term rates. You are contractually bound to pay the full cost of the policy, irrespective of whether or not you own the car.

Be careful and ALWAYS ask your broker/adviser as to the status of the proposed policy when it comes to return of premium. This is not something that they have to volunteer. I have a mate who insured his car for £1,200, paying monthly. He sold the car (due to loss of job) halfway though the policy, cancelled his insurance and thought that was that. Nope. His insurer told him that he had to continue paying the monthly premiums for the full term, despite him not owning the car. He laughed it off, thinking they were trying it on and just ignored them. The insurer has recently obtained court judgement against him and he woke up to a bailiff knocking on his door yesterday  

If you've paid your premium in full in this situation then you're just as stuffed - it's gone for good.

However....

Get your broker to check the smallprint, as there IS a loophole.

Many of the 'short rate' or 'no return of premium' insurers stipulate that they WILL return a pro-rata portion of the premium, fair and square, if they are no longer able to insure the vehicle. I had a long discussion with my own broker on this and came to the conclusion that although my insurer offer some pretty nasty 'short term' rates, if I secured a buyer and then 'borrowed' a friends Nitrous Oxide kit (specifically excluded under the policy terms), temporarily fitted it to the car and paid £30ish for an engineer's inspection to confirm the same, then on submission of the engineer's report to the insurer they would have to make me a fair pro-rata premium refund.

Then I could simply remove the Nitrous Oxide kit and complete the sale to the new owner.

Bearing in mind that the most unsophisticated NO2 kits can be fitted with very little work and require nothing more than a bung in an intake pipe afterwards to seal it, this is an efficient way of recouping your premium if faced with a far superior quote from a 'short rate' or 'no refund on cancellation' insurer and then later selling the car.

My first and foremost advice would be to try and ensure that your policy offers fair pro-rata premium refund on sale of the vehicle and subsequent cancellation of the policy, however the next best insurer in my case was more than £200 more expensive.

Knowledge is power, people


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## R34 GTT Boy (Jan 10, 2002)

Very good post. Just cancelled my policy with A-Plan after 4 months of it being in-force and only got back 40% of the premium.

Check the small print folks,


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## Mookistar (Feb 5, 2004)

heres a trick that might work

tell them you want to transfer your policy, but choose a car they won't insure outright (eg, an import)

then its THEM who cancel the policy, and in my case, i got a full pro-rata refund 

mook


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## Jim27 (Jul 1, 2004)

Prceisely, Mook  You have to want to continue whereas they are unable or unwilling to


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## moleman (Jun 3, 2002)

This is ONE of the problems that I had with the dreaded Flux. After receiving a letter highlighting what percentage I could expect back if I cancelled my policy, they totally tried to screw me over when I did have to cancel it. Threats of legal action was the only way to get what I was owed.

Scumbags!


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## Jim27 (Jul 1, 2004)

Ironically A Flux are only a broker - not an insurer. It'll be your insurer that was squeezing you, through the broker. Given the newly introduced compulsor regulation of insurance intermediaries by the Financial Services Authority, if A Flux were REALLY trying to keep your money they'd be skinned alive by the FSA.

In my work as an IFA I too am regulated by the FSA and we HAVE to disclose any contract terms that could disadvantage the client. Regulation of the insurance intermediaries has not yet developed to this extent therefore the broker (A Flux in your case, moleman) would not have to had explicitly told you of these issues.

The way the broker works is that they take your payment, retain their commission and forward the net premium cost to the insurer. When you cancel and want money back, if the insurer pays a return of premium into the broker's client account they WILL be skinned alive if they try to keep it. Trust me - the client account and payments/refunds of premiums are VERY closely monitored.

In all likeliehood it was the insurer playing silly buggers, moleman, and A Flux just didn't want to push them too much. Which is a shame, seeing how as your broker they are supposed to act on your behalf as their client, rather than in the best interests of their working relationship with any given insurer 

So there ya go - looks like a few people have been stung. Finally! Jim actually posts a worthwhile thread!! It had to happen eventually!!


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## skyline69_uk (Jan 6, 2005)

Short term rates normally come from the administrators and introducers and not the insurers themselves (normally) - they just agree across the board when they go on a panel of insurers. Basically there can be 3 parties involved in getting you your insurance - e.g. Debenhams insurance - Debs (the introducer) hires another broker/call centre (called the administrator) to do their insurance which is underwritten by an insurer (the insurer).

The insurer may be happy with pro-rata as they have very little to do unless you make a claim. 

Debs have at this stage already got their introducer cut (about 7% say) and the admin (about 5% of the cut) has already paid the staff/rent/equipment etc who handled the case so the short term rate is for the admin to get their money back and for the loan interest you have incurred if you pay by direct debit.

If you go direct to an insurer who runs their own call center you will usually get the better pro-rata as they usually ignore the initial cost of the transaction and like Jim says are more FSA aware.

Short term rates are normally fairly rough for performance cars as they are percentage based and not simply cost based. They do work out in the long run for the admin to get profit (very little although) and are just a cost returning exercise but us poor suckers get the sh*tty end of the stick because of the percentage crap.

I would fight the short term rates and I would reckon with the FSA etc you would probably win the argument.

Of course if you have had a claim during the year you are getting none of it back!


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## moleman (Jun 3, 2002)

Thanks for that Jim. If you are right - and I have no reason to believe otherwise - bearing in mind that this particular problem dragged on for months and months with loads of phone calls and letters in both directions, at no point did Flux try to lay the blame with the insurers. If it really wasn't them, why not say so. Bizarre, eh?


Just realised, reading my post again, that "The Dreaded Flux" sounds like some kind of malevolent intergalactic war machine, or Darth Vader's second in command.


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## Sean (Aug 16, 2005)

moleman said:


> Thanks for that Jim. If you are right - and I have no reason to believe otherwise - bearing in mind that this particular problem dragged on for months and months with loads of phone calls and letters in both directions, at no point did Flux try to lay the blame with the insurers. If it really wasn't them, why not say so. Bizarre, eh?
> 
> 
> Just realised, reading my post again, that "The Dreaded Flux" sounds like some kind of malevolent intergalactic war machine, or Darth Vader's second in command.


The flux was a catch-all name for an illness that 'doctors' up to the 19th century, couldn't identify, anything that involved a fever basically. The standard cure for the flux was the leach and a strong drink. Jesus this metaphor gets worse!


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## moleman (Jun 3, 2002)

Sean said:


> The flux was a catch-all name for an illness that 'doctors' up to the 19th century, couldn't identify, anything that involved a fever basically. The standard cure for the flux was the leach and a strong drink. Jesus this metaphor gets worse!


Phlegm, bile & blood if I remember correctly. My Nan used to say she had "the flux" when she had a cold, lol. She explained it to me once but it escapes me now. Something to do with Hippocrates.

Sorry Jim, totally off topic!


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## Jim27 (Jul 1, 2004)

The broker may well be calculating the short rate charge but only in agreement with the insurer. The broker has arranged your policy on your behalf - if you don't pay, the broker *still* has to pay the insurer. It's called a 'time on risk charge. So it will be the broker that pursues you, not the insurer, for payment - because they've already paid!

Hence I posted this thread. Playing the game properly  will hopefully mean you avoid all this anyway  The pre-agreed short term rates will also take into account the brokers commission...


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