Cancellation Provision Clause

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.

For example, if the insured paid 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.

When an insurance policy is subject to cancellation, an insurer is usually required to send a written notice 30 days in advance of the effective date. If the notice does not contain an explanation for the cancellation, the company is often required to provide such an explanation in writing upon receipt of a written request from the policyholder.

If an insurance policy 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