What is required to cancel an insurance contract?

An insured may terminate an insurance policy at any time. Generally, it requires that the insured express intent to cancel the policy. This may include notifying the insurer in writing or discontinuing payment of premiums. If the insured stops paying the insurance premiums, the insurer must provide the insured with notice of its intention to cancel the policy. If the insurer fails to provide notice within the statutory period, the insured may be able to resume her insurance contract by resuming payments. An insurer is generally limited by statute in its ability to cancel a policy.

What are situation where an insurer can cancel an insurance contract?

 Below are the common situations in which an insurer may cancel a policy.

Void by Insurer

An insurer may void a contract if the insured supplies false or misleading information to the insurer to obtain insurance. To void the contract, the insurer must demonstrate that the insured made a fraudulent or material misrepresentation. Further, the insurer must demonstrate that it would not have entered into the insurance relationship with the insured if it had known of the misrepresented facts.

Note: This right is limited by the incontestability period or clauses in the contract.

Conditions in Policy

An insurance policy may contain any number of conditions that can cause cancellation of the insurance policy. These are normally limited by state law and rules of equity.

Example: A professional liability or malpractice policy may contain a clause terminating a policy if a person loses a professional licensure.

End of Policy Term

An insurer may be able to terminate an insurance policy at the end of a stated insurance term. State law may limit the ability of the insurer to deny an insured the ability to renew a policy that has not lapsed. This is particularly true with health and life insurance policies.

Example: A term life insurance policy has a stated period during which the insurance provisions are effective.