“Honesty is the fastest way to prevent a mistake from turning into a failure.” (James Altucher)
When you take out an insurance policy, you are entering into a contract. And, with all contracts, there is always a way for it to be cancelled.
For the insured person, this is quite simple. There is usually a clause that allows you to end the contract at any time, after giving the required notice. This is usually 31 days.
For the insurer, it is more difficult, but it is nevertheless still possible. There are legal grounds for a company to cancel your insurance policy, and it’s important to understand why this might happen.
1) You miss premium payments
It goes without saying that for you to keep your insurance cover, you have to pay for it. But different insurance contracts will deal with missed premiums in different ways.
By law, the insurer has to notify you in writing within 15 days of it becoming aware that you missed your premium. It must then give you a grace period of at least another 15 days to correct it.
Some policies will extend this grace period to as much as three months, but you will have to pay back the premiums you missed. In some instances, you may also not have cover for the period that your premiums are outstanding.
2) Failure to make full disclosure or suggestions of dishonesty
There are two ways in which an insurer might act in a case where you did not provide accurate information.
The first is if the company discovers that you did not make a full disclosure when taking out the policy. For example, you did not inform them of previous accidents that would have affected your risk rating.
If this happens, they can void the policy. That means treating it as if the contract was never entered into, since it was never valid. In this case, you would be refunded whatever premiums you have paid.
A cancellation for being dishonest is much more serious. This would occur in a case where the policy was valid, but a fraudulent claim is made. For instance, a client claims that they were driving at the time of an accident, when in fact their teenage son was behind the wheel.
In a case like this, the claim would be dismissed, the policy would probably be cancelled, and there would be no refunded premiums.
3) Your risk profile changes
Last year a social media storm erupted because someone complained that their insurer had cancelled their policy. There was a lot of criticism of the company, but the background to the story was that the client had made four claims in the past five months.
In an instance like this, the client’s risk profile has clearly changed. The contract was based on a certain assessment of their risk which is no longer valid.
Usually, an insurer should respond to this by engaging with the client about whether this is just extreme bad luck, or if their risk really has shifted. It may be necessary to increase the premiums. In extreme cases, it might result in cancelling the policy.
It’s important to understand when an insurer can take this kind of action because if you have ever had a policy cancelled, you will have to disclose this any time you apply for another one. And this will make it much more difficult to get insurance at all.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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