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
Insurance coverage that protects a contractor or other type of business providing a service for expenses incurred in the event a contract is not ratified by a foreign government. For ...
Paid loss experience for the period of time from January 1 to December 31 of a specified year (not necessarily the current year). ...
Operator with no liability insurance. If a non-insured driver hits another car, the victim sometimes has no recourse against the driver. For this reason, many motorists carry uninsured ...
Circumstance under which there is a significant deviation of the actual aggregate losses from the expected aggregate losses. For example, a hurricane is a hazard that is catastrophic in ...
Technique of risk management (better known as retention or self insurance) under which an individual or business firm assumes expected losses that are not catastrophic losses through the ...
Type of disability income policy used to provide funds for the ongoing monthly business expenses (such as employee salaries, utility charges, rent, and equipment payment due) necessary to ...
Individual who sells and services insurance policies in either of two classifications: Independent agent represents at least two insurance companies and (at least in theory) services ...
Viewpoint that an insurer whose liability policy is in force at the time of an accident or injury should pay a claim. See also long-tail liability; manifestation/injury theory. ...
Risk management control procedure that emphasizes safety management. Its purpose is to reduce the frequency and severity of potential losses. Business firms apply this procedure by posting ...
Have a question or comment?
We're here to help.