Cancellation Provision Clause

Definition of "Cancellation Provision Clause"

Vivian Jones real estate agent

Written by

Vivian Joneselite badge icon

JLA Realty

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.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Information needed for underwriting a life insurance policy, such as an applicant's age, weight, height, and build; personal and family health record; occupation; and personal habits. These ...

Trust in which a charity receives income from a donated asset for a specified number of years that it is held in that trust. After the specified period concludes, the principal is ...

Standard State Valuation and Non forfeiture Law approved by the national association of insurance commissioners (naic) in 1942. This law is named for Alfred N. Guertin, the actuary who ...

Contracts of reinsurance in which expected income from investments is a major component of the UNDERWRITING process. Also, the ultimate liability of the reinsurer is limited. The reinsurer ...

New rule entitled "Accounting for Certain Investments in Debt and Equity Securities," which requires most fixed maturity investments to be listed on the INSURANCE COMPANY'S FINANCIAL ...

Estimate of maximum dollar value that can be lost under realistic situations. For example, a fire or other peril occurs, but a sprinkler system works and a fire department responds in good ...

Death caused by a person without legal justification. Wrongful death may be the result of negligence, such as when a drunken driver hits and kills someone; or it may be intentional, as when ...

Program through which employees purchase individual life insurance and disability income insurance by having the employer reduce their income by the required insurance premium. Since the ...

Method of funding a pension plan through: an individual level cost basis, where future benefits for the employee are estimated and contributions are made periodically while the employee is ...

Popular Insurance Questions