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
Coverage for automobiles used by a business when a liability judgment arises out of the use of the automobile, or the automobile is subject to damage or destruction. The business can select ...
Policy in which an insurer agrees to pay property or liability losses in excess of a specific amount per occurrence. For example, this type of coverage typically is used by an employer that ...
Provision in a life insurance policy that death benefits will not be paid in the event an insured dies from war-related causes; or in lieu of a death benefit there is a return of premiums ...
Difference between the actuarial equivalent (rate) and the often lower rate actually charged to insure a risk. ...
Factor considered in determining amount of life insurance to purchase in order that funds will be available to pay the emergency expenses following the death of a family member. ...
Evidence of a temporary contract obliging a property insurance company to provide coverage as long as the premium accompanies the application. A property insurance agent can bind a company ...
Government agency, under the McCarran-Ferguson act (public law 15), that has no authority over insurance matters to the extent the states regulate insurance to the satisfaction of Congress. ...
owner of property has an insurable interest because of the expectation of monetary loss if that property is damaged or destroyed. creditor of an insured has an insurable interest in ...
Compensation payable to the owner of a ship detained for reasons beyond his or her control who incurs a loss of earnings because of the delay. Detainment can be caused by a delay in the ...
Have a question or comment?
We're here to help.