Your health insurance coverage might not be exactly what you'd hoped for, and when this is the case, you'll need to cancel your policy. Many health insurance buyers wonder about the penalties of early cancellation. If you cancel your policy, what will you need to do to avoid penalties, and are there actually any penalties for cancellation at all?

The good news is that your health insurance coverage can be changed or canceled at any time, unless your policy specifically says otherwise or unless you're under legal orders to pay for health insurance. You're under no legal obligation to stay insured, and you're not going to be penalized for early cancellation of your health insurance policy. With that being said, it's a bad idea to create a gap in your coverage, so if you're thinking of canceling your health insurance coverage, you should make sure that you have a new health insurance policy ready to go. Your new health insurance company should be able to guide you through the process to cancel your old policy and start your new one without a gap in coverage, and this will help you avoid penalties down the line like denied claims and higher rates.

There is an exception. If you're on Medicare, before you cancel your policy you'll need to contact the Health Care Financing Administration in order to inform them of your change before you switch to a new health insurance provider. There may be some penalties for Medicare recipients for making a switch without taking the proper actions, so you'll want to carefully read your Medicare information and contact the HCFA to avoid penalties. Your health insurance agent may be able to help you with this process. Contact your agent as soon as you can to discuss your Medicare, and don't wait–it's important that you stay insured, and you'll want to avoid complications that may arise. The best way to do this is to speak with your agent as quickly as possible so that you can begin the process of switching your Medicare.

When you cancel your policy, you should make sure that you get the unused portion of your premiums back. In most cases this is rated proportionally, so if you were paying by the month and you cancel with a week left in the month, you'll get a week's worth of health insurance premiums returned. Call your old insurance company to get your money. They should be able to pay you within a month or so; if you're having trouble getting your money, ask your new health insurance agent for advice.