Are car insurance companies allowed to charge a cancellation fee? -

It's on a state by state basis. They are ALL allowed to charge a "short rate cancellation penalty". Many states ALSO allow a cancellation fee, in ADDITION to the short rate cancellation penalty. That's because, it costs money to issue a policy. The cost of issuance is built into the policy premium for a full year. If you cancel the policy before the year is up, the insurance company STILL needs to get compensated somehow, for the cost to write your policy. So, there's a short rate penalty, and sometimes a cancellation fee. Any cancellation fee should have been disclosed on the application you signed, but the short rate penalty is NOT. If the original contract says that that they can. Unfortunately I think they can. I am assuming that you are wanting to change insurance company before the end of your contract with your current insurance company? Read through the terms and conditions provided when you first signed up and it should say in there if cancellation fees are agreed. If it's not included then you have a case to argue. If it is, either bite the bullet and pay up or wait until this contract expires. The insurance companies always get their way unfortunately!! God yes of course, why would you think they don't have? Sorry but I'm afraid those are the breaks. If you think it's unfair then you could write to the company. But you'd have to have a good reason for saying it shouldn't apply to you though. Cancellation fees can differ depending upon the insurance company policy provisions and state laws. Some state laws prohibit cancellation fees. Typically, there is no fee for cancellation except if it is canceled at the insured’s request during the term of the policy; at that point it can be a short rate cancellation. Basically, if the policyholder requests the cancellation of the policy he or she will lose 10% of the unused premium. However, some state laws even prohibit short rate cancellation fees. To avoid the issue wait until the policy term ends (usually 6 months) to change insurance carriers. They can if they have disclosed it to you. They can charge you any fee that your contract says they can. If you agreed to it by paying your premium, then you are at risk to be charged "junk fees". not if you cancel b4 the deadline date