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When to Cancel or Non-Renew a Policy

Winter 2020 Issue

By Melissa Stream, Underwriting Consultant

Out of the many phone calls and emails I receive every week, one of the most common questions is, “Can I cancel this policy?” Sometimes the manager is actually asking if they can non-renew the policy, instead of canceling it during the policy term.

Why am I so fussy about distinguishing the two from each other? Both are considered terminations of an insurance contract, but there is a difference. To determine how to best help them, It’s important to know if one is trying to issue a cancellation during the policy term or trying to non-renew the policy. Additionally, in some states, it’s easier to non-renew a policy than to cancel it during the policy term.

A cancellation is the termination of an insurance policy, before its expiration, by either the insured or the insurer. The cancellation may only be allowed for certain circumstances depending on the state. A common reason for cancellation is non-payment of premium.

Nonrenewal refers to the termination of a policy at the expiration date. The nonrenewal notice must provide the reason for the nonrenewal. In many states, the insurer must provide information in the notice on how to apply for coverage through the state’s FAIR insurance plan.  A common reason for nonrenewal is due to a specific number of claims over a specific period of time that exceeds underwriting guidelines. (If non-renewing a policy due to loss history, list the claims and a short description of the loss or provide a document of the loss history.)