On Sept 12, i switched home, auto, and earthquake insurance from state farm to aaa. Although thats when the insurance went into effect i had paid at the end of august and pretty much spent the whole month of august working with the bonehead agent i was assigned to. Long story short, 14 days into the policy, i get a letter saying the home and earthquake insurance was going to be cancelled Oct 26. So i ended up going with geico, and called today Sept 26 to cancel all of the policies since it was a bundle. For the auto insurance, i was told i had to put 25% down which was almost a thousand dollars. When o cancelled all of them i had expected to be charged for two weeks of insurance and be done. However aaa tells me that not only can they not return any of the $1000 i paid but they’re also going to send me a bill for $95 essentially charging me $1100 for two weeks of auto insurance. The reasoning was because i was cancelling the insurance in less than a year. However the only reason i cancelled was because they cancelled the home insurance and i wouldnt be able to get the bundle i had paid for. I’ve already filed a complaint with the state board of insurance but can they really do this?
Posted by toolhater
2 Comments
Yes, they can really do this. The bundle is just a discount they apply if (and only if) you meet all the underwriting criteria for all the bundled lines of coverage and have and maintain all the different policies the bundling discount applies to. That didn’t happen here – turns out when they took a harder look after receiving your application, they determined that your home did not meet their underwriting requirements and they cancelled your HO and earthquake coverage. They did not cancel your auto policy, so that remained in effect. They would have removed the bundling discount, but you still get the benefit of the bargain you made with AAA (which is almost certainly contained in the fine print in the application you signed).
You, however, decided to cancel the auto policy and there’s language in the policy (and likely on the application as well) that states there is a minimum earned premium of 25% should the policyholder cancel the policy. While minimum earned premiums aren’t all that common in personal lines coverage, they exist to make sure the carrier doesn’t spend time and energy underwriting an account only to have it canceled within days of placing coverage and have to refund almost everything, thereby being put into a loss position since it cost them money to get the policy in place.
Applications and policies contain many, many pages of text. Every single word means something. It’s important to spend an afternoon reading through all of it, line by line, and figuring out what things mean. The auto policy was a $4K+ annual expense – that deserves a few hours of digging into the details. It’s not fun, it’s really boring, it can get complicated and confusing, but if you pour through the documents, you learn about these things before you’ve made an $1.2K error.
The state board of insurance is unlikely to provide any relief. They approved the language that allows this to happen, and they almost certainly prohibit AAA from giving away premium money it has legally earned. Still, good luck. Maybe I’m wrong and you’ll get some relief, and I sincerely hope that does happen. I just wouldn’t count on it.
You wasted your time, and theirs, complaining to the DOI. Most states allow what’s called “short rating” or “minimum earned premium”. Short explanation is that not all of your premium goes to the risk portion of your policy. There are administrative costs, inspection costs, costs of running reports, etc. Those costs are also part of your premium. When you cancel very early into a new policy, the policy will be short rated to account for those costs the company incurred. That’s why you won’t get 50 weeks your annual premium amount refunded if you cancled 2 weeks into the policy term. That’s also part of the reason why you have the down payment you did, to make sure they get the money owed if you cancel early like you did. I know I sucks, but it’s legal.