Cancelable Insurance

Cancelable insurance is a type of policy that either the insurance company or the insured party may terminate in the midst of the coverage term. Many types of insurance, with the exceptions of life insurance, can be structured in this way.

Typically, the insured can terminate a cancelable policy at any time. If the insurer cancels the policy, however, the firm must give notice to the policyholder and must also refund any prepaid premium on a pro-rata basis.

Of note, some states may have different regulations as to the conditions under which many types of insurance policies may be canceled.

An insurer may send the holder of a cancelable policy a notice mid-term that they need to pay significantly higher premiums to continue coverage, or they may have their coverage-limits lowered if they want their premiums to stay the same. This still falls under the definition of cancelable insurance, as the original policy will have canceled during the initial coverage period.

Cancelable insurance differs from two main other insurance types: non-cancelable policies and guaranteed renewable policies. In a non-cancelable policy, the policy provider many not terminate the insurance, nor can they raise premiums for the duration of the original coverage period, provided the policyholder continues to pay the premiums. A guaranteed renewable policy also cannot be canceled and coverage limits cannot be altered by the insurance company mid-term, provided that the holder pays premiums on time. However, premiums for the entire coverage group can increase under a guaranteed renewable policy.

In certain circumstances, an insurance company may also offer optionally cancelable policies. These allow the insurer to either terminate a policy on a date set in the initial contract, or extend coverage past the termination date. These may also be called conditionally renewable policies.

The cost of cancelable insurance is often less than that of a comparable non-cancelable or guaranteed renewable policy. However, this type of insurance may not be desirable when it comes to many common types of insurance, such as auto or home coverage. Cancelable insurance comes with the risk that the policyholder may need to find alternative coverage during the notice period, or go completely uncovered once the notice period has expired. This may be very undesirable for many types of policies, but perhaps less so for insurance covering a specific piece of artwork or a piece of industrial equipment over a specific time frame.

Of course, the policy holder also can end a cancelable policy. Before canceling any insurance however, the policyholder may want to line up replacement insurance in advance. In the case of health care coverage, for instance, certain medical conditions that developed during the period covered by the prior health insurance may be excluded from coverage under the new policy as a pre-existing condition.