An insurance policy is a contract between two parties: you and the insurance company. The contract has specified inception and termination dates, and it is meant to be in force throughout the entire time period. However, each party to the contract has certain cancellation rights in case it needs to break the contract. You have rights to cancel your policy, as well as rights against your insurer canceling it without due cause.
In the United States, insurance customers generally have the right to cancel their policies at any time for any reason. If you paid your premiums in advance, your insurer will refund any unearned premiums, meaning the money you paid for coverage for the time after the cancellation date. In other words, your refund will be prorated to the date of cancellation. Some insurers will charge an administrative fee if you cancel your policy in the middle of its term. This is called a short-rate cancellation.
Insurance companies can cancel certain types of common insurance policies, like auto and home contracts, for any reason during the first days after it issues the policy. The exact amount of time it can do this varies by state but is typically 30 to 60 days. After this initial period passes, the insurer's right to cancel your policy diminishes greatly. Each state outlines the reasons it permits an insurer to cancel your policy, but they generally include nonpayment of premium, a significant change to the risk involved to the insurer or misrepresentation on your initial application.
Cancellation Notification Rights
If an insurer cancels your policy, it must notify you in advance of the cancellation date. Again, each state specifies the exact amount of time it requires its insurers to give you notice, but generally you must receive notice of cancellation at least 15 days in advance and sometimes longer. Massachusetts requires its insurers to give at least 20 days' notice to their customers. The same principle applies to notices of nonrenewal, when an insurer chooses not to renew a policy for another contract period after its stated expiration date.
Some circumstances require specific laws to protect insurance consumers. California, for example, has several laws that outline acceptable cancellation practices for homeowners in the state. The state protects home insurance customers after they have a claim for damage to their home by forbidding insurers from canceling coverage at renewal time if the home has yet to be completely rebuilt. Similarly, insurers must renew policies at least one time after a home suffers a total loss if the damage was caused by a natural disaster and not a result of customer negligence. Your state may have specific cancellation laws that affect your rights in a given claim situation.
- California Department of Insurance: Homeowner Bill of Rights for Insurance Emergency
- 21st Century Insurance. "I Need to Cancel My Policy. What Do I Need to Do?" Accessed Sept. 1, 2020.
- Progressive. "What Happens If My Car Insurance Lapses?" Accessed Sept. 1, 2020.
- Esurance. "Renewing Your Car Insurance Policy." Accessed Sept. 1, 2020.
- Nationwide. "What to Know About Switching Car Insurance." Accessed Sept. 1, 2020.
Stephen Hicks has been writing professionally since 2000. He recently published his first novel, "The Seventh Day of Christmas." He spent three years as a licensed life and property/casualty insurance agent in California. Hicks holds a Bachelor of Fine Arts in cinema studies from New York University.