Cancellation Provision Clause
Definition of "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
Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals, and clinics. Emphasis is on preventive medicine. Members of the HMO pay a flat ...
Relinquishment of rights to benefits when an employee withdraws previous contributions to a plan. An employee who had not withdrawn these contributions would have been entitled to full ...
Coverage that is renewable at the option of the insured, who is not required to take a medical examination. Regardless of physical condition, the insured must be allowed to renew the policy ...
Liability coverage mandated by the employee retirement income security act OF 1974 (erisa) under which employers are required to purchase insurance to cover their contingent liability for ...
Term in pensions; leaving a job before normal retirement age, subject to minimum requirements of age and years of service. There usually is a reduction in the monthly retirement benefit. ...
State law that requires that an insurance policy issued by an insurance company in a particular state be signed by an agent of the company holding a license in that state. ...
In insurance, fraudulent or unethical practice that is illegal under state law. States may fine or revoke the licenses of agents and brokers for unfair trade practices, including ...
Documents completed by the agent to effect authorization to act on behalf of the company. ...
Coverage for damage due to peril! of war, usually written as part of an ocean marine insurance policy. ...
Have a question or comment?
We're here to help.