What are ‘short term rates’ on a car insurance policy?

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Every car insurance policy will be subject to short term rates in the first year of insurance. This is a penalty imposed by the insurer if you cancel before the 12 months of cover are up. A typical example would be as follows:

Period of cover – % of premium that will be refunded

Up to 7 days –         85%
Up to 14 days –       80%
Up to 1 month –      75%
Up to 2 months –    60%
Up to 3 months –    50%
Up to 4 months –    35%
Up to 6 months –    25%
Up to 8 months –    10%
Over 8 months –      0 %

So, as you see, if you cancel after 6 months you only get 25% (not 50%) of your money back.

Why do insurers do this?

It’s simple. Insurers don’t want someone taking out a policy for a month, then cancelling and starting again one month later and so on. Short term rates have become the standard practice in year 1 with any insurer.

What refund should I get if I am in year 2, 3, 4, 5 etc with an insurer?

Short term rates will normally only apply in the first year. After that you will normally get a pro-rata refund. So if you cancel 6 months into the term you should get 50% of your renewal premium back (less the broker admin fee, if applicable).

Is there any way around it?

If you do need to cancel your policy in the first year of insurance and you have a genuine reason, I would suggest writing a letter to your broker or insurer outlining your (hardluck!) story and asking them to help you out. If you are with a good broker and you have a genuine reason then you should get it sorted.

If you would like a car insurance quotation, please call us on 049-4332944, e-mail info@martininsurance.ie or complete our online enquiry form.

Disclaimer: The material contained is this article is for general information purposes only and does not constitute professional advice.

James Martin
James Martin
James Martin has 16 years of experience as a general insurance broker. He is a member of the Chartered Insurance Institute and has completed a Diploma in Corporate Finance.

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