An insured may terminate an insurance policy at any time. Generally, it requires that the insured express intent to cancel the policy. This may include notifying the insurer in writing or discontinuing payment of premiums. If the insured stops paying the insurance premiums, the insurer must provide the insured with notice of its intention to cancel the policy. If the insurer fails to provide notice within the statutory period, the insured may be able to resume her insurance contract by resuming payments. An insurer is generally limited by statute in its ability to cancel a policy.
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What are situation where an insurer can cancel an insurance contract?
Below are the common situations in which an insurer may cancel a policy.
Void by Insurer
An insurer may void a contract if the insured supplies false or misleading information to the insurer to obtain insurance. To void the contract, the insurer must demonstrate that the insured made a fraudulent or material misrepresentation. Further, the insurer must demonstrate that it would not have entered into the insurance relationship with the insured if it had known of the misrepresented facts.
Note: This right is limited by the incontestability period or clauses in the contract.
Conditions in Policy
An insurance policy may contain any number of conditions that can cause cancellation of the insurance policy. These are normally limited by state law and rules of equity.
Example: A professional liability or malpractice policy may contain a clause terminating a policy if a person loses a professional licensure.
End of Policy Term
An insurer may be able to terminate an insurance policy at the end of a stated insurance term. State law may limit the ability of the insurer to deny an insured the ability to renew a policy that has not lapsed. This is particularly true with health and life insurance policies.
Example: A term life insurance policy has a stated period during which the insurance provisions are effective.
Related Topics
How do you feel about the requirements for terminating an insurance policy? Why do you think the law places these limitations? Do you have an opinion regarding the above-listed situations allowing an insurer to cancel a policy?
ABC Corp holds an insurance policy with 123 Corp. ABC has made lots of claims in the past years and 123 is considering canceling the policy. What will 123 have to do procedurally to cancel the policy? What conditions provide 123 the ability to cancel the policy?
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You may (if your policy permits) cancel your policy before its expiry date. If you cancel your policy, any refund of premium will usually be sent to you within 15 business days.
If you change your mind about your insurance purchase, you have a minimum 14-day cooling-off period for most general insurance products. This means you can cancel your policy in this time without any penalty or loss of premium paid.
When it is time to renew your policy, the insurer must inform you in writing that your policy is going to expire at least 14 days before expiry, and tell you whether it will agree to renew the insurance contract. If the insurer fails to do this, the Insurance Contracts Act treats the policy as continuing for another term unless you replace the policy.
The insurer may only cancel your policy in certain circumstances:
- You fail to pay your monthly premium instalments and the payment remains outstanding for at least one month
- You fail to comply with the Duty of Utmost Good Faith
- You fail to properly comply with your duty of disclosure at the time you entered into the contract
- You misrepresent your situation at the time you entered into the contract
- You make a fraudulent claim under the contract of insurance or some other concurrent insurance cover
If an insurer intends to cancel your contract of insurance then it must give you written notice of its plans. The minimum notice period is three business days after having given you the notice of cancellation, though many insurers provide longer notice periods.
Cancelable insurance is a type of policy that either the insurance company or the insured party may terminate in the midst of the coverage term. Many types of insurance, with the exception of life insurance, can be structured in this way.
- Cancelable insurance is a type of policy that either the insurance company or the insured party may terminate during the coverage term.
- Usually, the insured can terminate a cancelable policy at any time, but If the insurer cancels the policy, they must give advanced notice and also refund any prepaid premium.
Typically, the insured can terminate a cancelable policy at any time. If the insurer cancels the policy, however, the firm must give notice to the policyholder and must also refund any prepaid premium on a pro-rata basis.
Of note, some states may have different regulations as to the conditions under which many types of insurance policies may be canceled.
An insurer may send the holder of a cancelable policy a notice mid-term that they need to pay significantly higher premiums to continue coverage, or they may have their coverage-limits lowered if they want their premiums to stay the same. This still falls under the definition of cancelable insurance, as the original policy will have canceled during the initial coverage period.
Cancelable insurance differs from two main other insurance types: non-cancelable policies and guaranteed renewable policies. In a non-cancelable policy, the policy provider may not terminate the insurance, nor can they raise premiums for the duration of the original coverage period—provided the policyholder continues to pay the premiums. A guaranteed renewable policy also cannot be canceled and coverage limits cannot be altered by the insurance company mid-term, provided that the holder pays premiums on time. However, premiums for the entire coverage group can increase under a guaranteed renewable policy.
In certain circumstances, an insurance company may also offer optionally cancelable policies. These allow the insurer to either terminate a policy on a date set in the initial contract or extend coverage past the termination date. These may also be called conditionally renewable policies.
The cost of cancelable insurance is often less than that of a comparable non-cancelable or guaranteed renewable policy. However, this type of insurance may not be desirable when it comes to many common types of insurance, such as auto or home coverage.
Cancelable insurance comes with the risk that the policyholder may need to find alternative coverage during the notice period, or go completely uncovered once the notice period has expired. This may be very undesirable for many types of policies, but perhaps less so for insurance covering a specific piece of artwork or a piece of industrial equipment over a specific time frame.
Of course, the policyholder can also end a cancelable policy. Before canceling any insurance however, the policyholder may want to line up replacement insurance in advance.