What Is a Cancellation Provision Clause?
A cancellation provision clause is a provision in an insurance policy that permits an insurer, or an insurance company, to cancel a property and casualty or a health insurance policy at any time before its expiration date.
Life insurance policies do not contain cancellation clauses, and while health insurance policies do contain cancellation clauses, the clause does not allow the insurer to cancel the policy.
Understanding Cancellation Provision Clauses
Generally, a cancellation provision clause requires that whenever a party chooses to cancel the policy, that party must send a written notice to the other involved party. The insurance company is also obligated to refund any prepaid premium on a pro rata basis.
Key Takeaways
- A cancellation provision clause is a provision in an insurance policy that permits an insurer to cancel a policy at any time before its expiration date.
- Cancellation provision clauses require the party that chooses to cancel the policy to send written notice to the other party.
- If a policy is canceled prior to the expiration date, the insurer is required to refund any premium difference that’s due.
For example, if the insured paid a premium for three months and chose to cancel the policy at the end of the second month, the insurance company is then required to calculate the premium that applies to the last month and refund it to the insured party. The policyholder will need to sign a lost policy release (LPR) to release the insurer of their liability obligations.
When an insurance policy is subject to cancellation, an insurer is usually required tosend a written notice30 days in advance of theeffective date.If the notice does not contain an explanation for the cancellation, the company is often required toprovide such an explanation in writingupon receipt of a written request from the policyholder.
If an insurancepolicy is canceled prior to the expiration date, the insurer is required to refund any premium difference that’s due. When an insurance policy is subject to non-renewal, an insurer is required to follow procedures similar to cancellation.
Sample Cancellation Provision Clause Language
- “In the event of cancellation or non-renewal of the insurance afforded by this coverage part, we agree to mail prior written notice of cancellation to the person(s) or organization(s) shown in the Schedule.”
- "This Policy may be canceled by the Company by giving to the Insured and to the additional insureds indicated on the certificates of insurance issued during the term of this policy, at least Sixty (60) days written notice of cancellation or in the case of non-payment of premium, at least ten (10) days’ written notice of cancellation."
- “Should any of the described policies be canceled before the expiration date thereof, the issuing Insurer will mail written notice in accordance with the policy provisions to the certificate holder named within the stated time frames of 30 days, except for reason of non-payment of premium at 10 days. Failure to do so shall impose no obligation or liability of any kind upon the Insurer, its Agents or Representatives.”
