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.”
FAQs
Understanding Cancellation Provision Clauses
What is the purpose of a cancellation clause? ›
Cancellation clauses are provisions found in an insurance policy that allows the insurer to cancel it before the end date. They permit the insurer to do so without a breach of contract penalty.
What does cancellation provision mean in real estate? ›
For example, when a buyer makes an offer on a property, that agreement typically has a cancellation clause that allows the buyer to cancel the agreement within a certain number of days if the property inspection report comes back with negative results.
What is the 30 days notice of cancellation clause? ›
In the insurance world, a notice of cancellation provision obligates insurers to provide advance written notice to the Certificate Holder if an insurance policy is cancelled or not renewed. The most common required cancellation notice period is 30 days, though, in some cases, up to 60 days may be required.
What is the cancellation clause of event? ›
A force majeure clause can shield you from liability or damages if the event is affected by an unforeseeable and unavoidable event that is beyond your control. A cancellation clause can allow you to cancel the contract for any reason, but with some limitations and consequences.
What is a cancellation provision clause? ›
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.
What does the cancellation clause usually include? ›
A cancellation clause outlines who can cancel a contract, why they can cancel it, and how they can go about canceling it. These clauses are included in most contracts, but they're especially common in insurance policies.
What happens if seller doesn't accept cancellation? ›
If a seller denies your cancellation request, the sale is final.
What is the cancellation clause in a real estate contract? ›
Whether you can cancel a contract depends on the terms within the agreement and the laws governing real estate transactions in your state. Mutual consent, contingencies, or a breach of contract are typically grounds for cancellation.
What is the difference between a termination clause and a cancellation clause? ›
Specifically, the parties may terminate a contract upon an agreement or the contract may automatically terminate when the parties fulfill their obligations without any breach or damage. Meanwhile, the cancellation of a contract mostly is a result of the parties' breach of the contract.
Either party may terminate this Agreement at any time after [insert time period after which agreement can be terminated, e.g., one (1) year], with or without cause, by written notice to the other, such termination to become effective [number, e.g., sixty (60)] days after receipt of such notice.
How do you write a cancellation clause in a contract? ›
Here is an example of a termination clause: “Party A and Party B have the right to terminate the Contract under material breach, change in circ*mstances, insolvency, and mutual agreement. To terminate the Contract, the terminating party must provide 30 days of written notice to the other party.
What is the contract cancellation rule? ›
Cooling-off Rule is a rule that allows you to cancel a contract within a few days (usually three days) after signing it. As explained by the Federal Trade Commission (FTC), the federal cooling-off rules gives the consumer three days to cancel certain sales for a full refund.
What are the three types of cancellation? ›
There are three common cancellation methods of cancellation: pro-rata, short-rate, and flat rate.
Why is a cancellation clause important? ›
One of the most significant advantages of a cancellation clause is that both parties know where they stand from the outset of the business agreement. Knowing that there is a cancellation clause in place means that both parties understand the criteria under which cancellation of the contract will occur.
What is the rule of cancellation? ›
Cancellation charges are per passenger. If a confirmed ticket is cancelled within 48 hrs and up to 12 hours before the scheduled departure of the train, cancellation charges shall be 25% of the fare subject to the minimum flat rate mentioned in the above clause.
What is the purpose of the cancellation policy? ›
Having a company cancellation policy in place often results in a more reliable schedule because it deters customers from changing their minds right before an appointment. And that saves you from having to waste time looking for a way to fill their spot in a productive way.
What is the purpose of a cancellation letter? ›
A cancellation letter formally announces your decision to terminate a service, event, or agreement. It serves as a written record of your decision and can help avoid misunderstandings. No matter your reasons for cancelling, it's essential to keep the tone of your letter professional.
What if a contract does not have a cancellation clause? ›
If a contract contains no right of termination, then the terminating party may be able to use common law to terminate the agreement. The common law right to terminate is available to all parties, regardless of a termination clause.
