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
Provision in business interruption insurance that excludes coverage for continuing the wages of rank and file employees. Business interruption insurance covers an employer for loss of ...
Property owned by two or more parties in such a way that at the death of one, the survivors retain complete ownership of the property. ...
Quality of investments of insurance companies. State insurance regulators establish rules for company investments. Authorized investments vary, depending on whether a company is a life ...
Technique of estate planning under which an estate is divided into two parts and taxed at a lower rate rather than remaining as a whole and taxed at a higher rate. This division may be ...
Method of comparing the costs of a set of cash value life insurance policies that takes into account the time value of money. The true costs of alternative cash value policies with the same ...
Commercial life insurers that operate on the legal reserve system as opposed to fraternal life insurance companies, many of which now operate on a legal reserve basis. ...
Fund that concentrates primarily on short-term government securities, certificates of deposit with maturities less than one year, and high-quality interest-bearing corporate debt. The fund ...
Nominal interest rate minus the rate of inflation. ...
Circumstances that encourage the organization of pension plans by employers. For example, employer contributions are tax deductible as business expenses and not currently taxable income to ...
Have a question or comment?
We're here to help.