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 company's reinsurance commissions and expense allowances divided by its adjusted surplus account. The smaller this ratio, the more financially sound the insurance company, since ...
Insurance policy that combines the elements of a deferred annuity with the elements of DECREASING TERM LIFE INSURANCE. This policy was originally designed to act as a funding instrument for ...
Stated fixed payment for maternity costs regardless of the actual costs. ...
Insurance under the personal automobile policy (pap) through a named non owner coverage endorsement offering protection for liability, uninsured motorists, and medical payments to a named ...
Insurance contract under which a policy owner cannot be assessed for adverse loss and expense experience of the insurance company. ...
Settlement of a dispute that arises when two or more insurers cover a single loss, and there is a question concerning the amount each is responsible to pay. The companies are bound by the ...
In property insurance contracts, provision that states that the violation of one or more contract condition^) at a particular location that is insured will not void coverage at other ...
Trust to which a donor transfers assets and that distributes income to finance a predetermined situation. After the trust expires, any remaining assets are donated to the qualified charity ...
Facility that provides short periods of stay for a terminally ill person in a homelike setting for either direct care or respite. A "terminally ill" person has a life expectancy of six ...
Have a question or comment?
We're here to help.