Thinking of cancelling your State Farm policy? Want to know your Penalty/Refund?

VifferFun

VifferFun

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Hi Everyone,

<<UPDATE! I HAVE ATTACHED AN EXCEL-BASED CALCULATOR FOR THE MATHEMATICALLY CHALLENGED :D>>

Time and time again, GTAM members ask me why they aren't allowed to cancel their State Farm policy (or drop to Fire and Theft only) for the winter without paying a "penalty". Although State Farm charges equal premiums every month, you actually "use up" the annual premium much faster over the Spring/Summer months than you do in the Fall/Winter. You are given the following copy of the State Farm premium-earning schedule with your policy package (note that a motorcycle is considered part of "Other Rec. Vehicles"):

SF.jpg


Depending on when your policy took effect and when you decide to cancel, you will fall into one of two categories:
  • You OWE State Farm for premium that you "used up" but did not yet pay for
  • You are entitled to a REFUND because you have paid for more premium than you have "used up"
Although I work in the insurance industry, I do not work for State Farm; however, based on State Farm's premium-earning schedule, I have put together the following document to help people understand what they will owe (or be refunded) should they decide to cancel their policy early. The twelve examples I have created below are for the following specific policy effective/renewal dates:
  • January 1st
  • February 1st
  • March 1st
  • April 1st
  • May 1st
  • June 1st
  • July 1st
  • August 1st
  • September 1st
  • October 1st
  • November 1st
  • December 1st
For each example, I show the percentage of the annual policy premium that you owe (or are refunded) at the end of each month of your policy. Bear in mind that State Farm charges you the first and last month's premium up front, so part (or all) or the premium owing will come out of the last month's premium that you have already paid. If you are entitled to a refund, then you will receive the refund percentage indicated below in addition to the last month of premium that you already paid.

Find the example below with the closest policy effective date to your own, and you can get an idea of what will happen should you decide to cancel your policy.

Enjoy!


StateFarmEarlyCancellationSchedule2.jpg
 

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Wow man, amazing.

What would be even better, is if you made a little website called "refundorpayoutthe***.com" and you could put a calculator on it like:

Date you signed up with SF
Date you want to cancel
How much you pay monthly
(possibly have a custom option where they can enter the %% for each month in case it changes).

click the magic "screw me or refund" button and it'll spit out what you owe or get back.

Now THAT would be sweeeeeeet.

-Jamie M.
 
ok... this info (great info btw) is for state farm... so.. in my case... freak.. i have to pay 149 dlls if i do an early cancelation in november...12.7%, now... what about others companies..??? are they doing the same thing...?? actually i consider my monthly insurance payment an average (98 dlls full cover), but if i can save some money with someone else... i will take it...

Juan.
 
toysareforboys said:
Wow man, amazing.

What would be even better, is if you made a little website called "refundorpayoutthe***.com" and you could put a calculator on it like:

Date you signed up with SF
Date you want to cancel
How much you pay monthly
(possibly have a custom option where they can enter the %% for each month in case it changes).

click the magic "screw me or refund" button and it'll spit out what you owe or get back.

Now THAT would be sweeeeeeet.

-Jamie M.
Click to expand...

Of course I have considered that, but I'm an actuary, not a web programmer :p

I think the twelve examples I have provided should be sufficient. Really, you can calculate the amount you owe (or are refunded) using State Farm's premium-earning schedule and Gr. 7 level math. For the "mathematically challenged", I have posted the examples so that people can get a ballpark estimate based on the example with the closest effective date to their own policy.

The main purpose of this thread is to illustrate the difference between the rate at which you PAY premium, and the rate at which you "USE UP" premium. Look through the examples I have given and you will see the difference between what you have paid and used up each month of the policy. At the very end of the policy, you will also notice that you have paid 100% and have "used up" 100%, and hence your policy is complete for the year.
 
juancho said:
ok... this info (great info btw) is for state farm... so.. in my case... freak.. i have to pay 149 dlls if i do an early cancelation in november...12.7%, now... what about others companies..??? are they doing the same thing...?? actually i consider my monthly insurance payment an average (98 dlls full cover), but if i can save some money with someone else... i will take it...

Juan.
Click to expand...

I'm not sure exactly what you are asking?

As far as I am aware, all companies earn motorcycle premiums according to a schedule similar to State Farm's. The schedule will vary from one insurer to the next, but it should be pretty close.

I have posted this thread specifically for State Farm, because they are one of the only insurance companies that allow people to pay motorcycle premiums monthly, rather than in a single lump sum at the beginning of the policy term. Other companies charge a lump sum just to avoid confusing the policyholders who think they can cancel their policy in November and not have to pay for the Spring/Summer premium they have used, but not yet paid for. If you have paid your premium in a single lump sum, then you will be entitled to a refund when you cancel the policy, since you have already paid for an entire year of coverage, but you are not using the policy for the full year. Bear in mind, however, that the refund will be very small if you have already used the bike in the "peak motorcycle season", because you have already "used up" a significant portion of your annual policy.
 
I have just modified the image so that there are two examples included: one with premium owing, and one with a refund. The examples also make it more clear on how your last month of premium is treated.
 
my renewal date was June 3rd. My next bill payment of $59 was due in July. I cancelled StateFarm June 24th and received a $67 cheque. Don't know how it works but I'll gladly take it.
 
why are motorcycles considered recreation vehicles? I use mine as my primary means of transportation... my other means being my feet.
 
psycho44 said:
my renewal date was June 3rd. My next bill payment of $59 was due in July. I cancelled StateFarm June 24th and received a $67 cheque. Don't know how it works but I'll gladly take it.
Click to expand...

Your next payment due was $59, but what were the monthly payments when you first purchased the policy? Perhaps your monthly payments were more last year than they were this year? Remember that the "last month's insurance" that you have already paid to State Farm is based off of the monthly premium when you first purchased the policy from State Farm.

By my rough calculations (assuming linear earning of premium within a month), either:

  • Your refund should have only been $37.37, or
  • Your monthly premium when you first purchased the policy was about $89/mo
 
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EpicHero said:
why are motorcycles considered recreation vehicles? I use mine as my primary means of transportation... my other means being my feet.
Click to expand...

This is just insurance lingo, to distinguish between different segments of business. We understand that it is the primary method of transportation for many people.
 
..... unless you pay monthly, like myself. ;)

I just recently moved my truck from SF to another company and didn't pay a cent to do so. A phone call was all it took, less than 3 minutes on the phone. :cool:
 
SLIM said:
I just recently moved my truck from SF to another company and didn't pay a cent to do so. A phone call was all it took, less than 3 minutes on the phone. :cool:
Click to expand...

This thread is specifically for motorcycles. In contrast to motorcycles, car/truck premiums are not seasonal so the premiums are "used up" equally each month. In effect, you don't need to worry about the premium-earning schedule for private passenger vehicles or "penalties" or "refunds" (with the exception of the minimum retained premium for short-term policy cancellations).
 
VifferFun said:
This thread is specifically for motorcycles. In contrast to motorcycles, car/truck premiums are not seasonal so the premiums are "used up" equally each month. In effect, you don't need to worry about the premium-earning schedule for private passenger vehicles or "penalties" or "refunds" (with the exception of the minimum retained premium for short-term policy cancellations).
Click to expand...

Interesting. Thanks for the info!
 
last year's monthly payment was $53. But anyways all this number crunching is hurting my limited brain cells.

I might have paid first and last month since I wanted to pay monthly without post-dated cheques.

VifferFun said:
You next payment due was $59, but what were the monthly payments when you first purchased the policy? Perhaps your monthly payments were more last year than they were this year? Remember that the "last month's insurance" that you have already paid to State Farm is based off of the monthly premium when you first purchased the policy from State Farm.

By my rough calculations (assuming linear earning of premium within a month), either:

  • Your refund should have only been $37.37, or
  • Your monthly premium when you first purchased the policy was about $89/mo
Click to expand...
 
psycho44 said:
last year's monthly payment was $53. But anyways all this number crunching is hurting my limited brain cells.

I might have paid first and last month since I wanted to pay monthly without post-dated cheques.
Click to expand...

The "last month's" premium will be the amount you paid when you first purchased insurance with State Farm. If this was four years ago, then your monthly rate four years ago will be rebated when you cancel.

I suppose that State Farm probably doesn't assume that premium is earned linearly throughout a month then, or perhaps you are forgetting another detail?

Anyways, the examples above are more meant to give people an idea of the situation that they might be facing (payment due or a refund entitlement) in the event that they cancel their policy.
 
UPDATE! I have attached an excel-based calculator in the original post for the mathematically challenged :D
 
This was awesome VifferFun! I just bought a new bike but State Farm wants too much for the insurance for it (compared to my current ride) so I was wondering how much this was going to cost me... you saved me an awkward call!!!

Thanks again!!!
 
90GT_Cobra said:
This was awesome VifferFun! I just bought a new bike but State Farm wants too much for the insurance for it (compared to my current ride) so I was wondering how much this was going to cost me... you saved me an awkward call!!!

Thanks again!!!
Click to expand...

No problem. I would still encourage you to contact the agent to ensure that you or I aren't overlooking anything specific to your policy though. It shouldn't be "awkward" . . . you wouldn't be their first or last client to cancel due to a cheaper premium offered by the competition :)
 
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