Cancellation Provision Clause
The cancellation provision clause appears in an insurance policy to leave a door open for the insurance company or insured to cancel a policy. This type of cancellation applies in instances of property and casualty insurance or health insurance. The cancellation can happen at any given time before the policy expires. However, it is important to note that when it comes to life insurances or health insurances, even though some have cancellation clauses, they do not refer to the insurer; those are there for the insured.
So how do Cancellation Provision Clauses work?
The basic requirement from any party canceling a policy is a written notice to the other party. If the insurance company decides to cancel the policy, they are legally compelled to pay back any unused premium through pro rata cancellation. So, if an individual purchased a three-month insurance policy that they paid in full but decided to cancel after the first two months, the insurance company needs to determine how much of the premium was for the last month and pay them back.
If the insurer cancels a policy, besides the 30 days notice required, they also need to explain the cancellation. If the notice does not have an explanation, then the insurance company is obligated to give a reason in writing when the insured party requires one in writing.
In any situation, except for life and health insurances. When a policy is canceled before it expires, the insurer has to refund the insured the premium difference that was not used. Besides the pro rata cancellation, another option is the short rate cancellation that includes a cancellation fee for the insured. Make sure to check the type of cancellation clause on your policy before you sign it as pro rata doesn’t necessarily apply for policyholders, and the short rate is more appealing to insurance companies.
Popular Insurance Terms
Traditional HMO made up of physicians who are salaried by the HMO. These physicians treat solely HMO members who are covered only if they use HMO physicians and hospitals. ...
Private, not-for-profit-group that develops and publishes safety codes and standards relating to protection of people and property against fire. The NFPA is financed by fees for technical ...
Coverage for a common carrier (the insured) for damage or destruction due to radioactive contamination from commercial radioisotopes of a property in the custody of the insured or that of a ...
Type of pension plan in which the employer (if noncontributory plan) or the employer and employee (if contributory plan) make level annual premium payments to fund the future retirement ...
Provision in an umbrella liability insurance policy under which the policy will pay those losses that come within the retention limits of the primary policy, but the primary policy cannot ...
In property insurance, amount that an insured does not have to pay when a loss exceeds a predetermined sum; here the insurance company pays more than 100% of the loss, so that the ...
Coverage under the Homeowners Form-4 (HO-4) for the insured's personal property and loss of use against fire and/or lightning; vandalism and/or malicious mischief; windstorm and/or hail; ...
Demand without foundation, such as a claim submitted to an insurance company by an insured who caused a loss, or for a loss that never occurred. ...
Method of payment of an insurance premium that allows an insured to regulate the amount and frequency of the premium payments in accordance with cash flow over a stipulated period of time. ...
Have a question or comment?
We're here to help.