Refund & Cancelation policy
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.
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.
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 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.
This method of calculating a refund carries no penalty and the amount is otherwise known as the return premium of a cancelled policy. This method is typically used if the policy is cancelled at the request of the insurance company. The return premium (or refund) is calculated by taking the number of days remaining in the policy period, dividing that by the total days of the policy, and then multiplying this number by the annual policy premium.
For example, if you have a 1-year policy with a premium of $1000 that has been fully paid to the insurance company, and you wish to cancel 200 days into the year, you will have 165 days remaining on your policy. Your refund, or return premium, would be calculated as 165 days divided by 365 days in a year times $1000, resulting in a return premium of $452.05
This method of calculating the return premium or refund carries a penalty, and is often used when the policy is cancelled at your request. The penalty charged to you is approximately 10% of the return premium, as described in the Pro Rata method above.
Using the example above and assuming the penalty is exactly 10%, the amount that would be owed to you is $452.05 less the penalty. The penalty of 10% is applied to the return premium and this amount would be substracted from your refund. Therefore, the amount you could receive will be $452.04 less $45.21 equalling to $406.83