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A flat cancellation terminates an insurance policy as of the effective date, so the insurer never accepts liability under the policy. Customers are entitled to a full refund because they have never used the policy. Either the policyholder or the company may initiate a flat cancellation, depending on the situation. Documentation may be required to sever the relationship with the company and receive a refund on the premium and any fees paid.
From the customer’s point of view, a flat cancellation would be necessary if a policy is no longer necessary. This may occur when people get rid of assets and thus don’t need to insure them anymore, or choose to take out a policy with a different company. Someone might sell a car around the insurance renewal date, for instance, and could request a flat cancellation of the policy and a refund of the premium already paid. It might be necessary to file a specific form to cancel the policy, making it clear that the insurer incurred no liability and must provide a full refund.
Insurers can flat cancel policies if they have reason to believe a policyholder was not truthful on the application for insurance. They may decide to reverse an offer of coverage on the basis of new information. This differs from rescission, where an active policy is terminated. In a flat cancellation, the insurance company informs the customer that no coverage will be provided and refunds the fee. The law may require that insurers provide information about why the policy was withdrawn.
Customers who later decide they want to open a policy after a flat cancellation may need to apply all over again. This process can include submitting documentation on assets and the conditions they’re kept in, as well as providing information about the demographics of the policyholder. A former offer of coverage doesn’t constitute an assurance that the insurer will underwrite a policy again.
As the policy was unused, the policyholder cannot make any claims on it. If a home burns down after a flat cancellation of an insurance policy, for example, the insurer has no liability and isn’t required to offer coverage. Policyholders transitioning between insurers should make sure they are covered at all times, as gaps in coverage will not be paid by either insurer. Protection from situations where no insurer is providing coverage is important for large assets that would be impossible to replace without assistance.