Flat Cancellation

What Does Flat Cancellation Mean?

Flat cancellation is when a policyholder cancels an insurance policy on the effective date. The effective date is the day it is meant to go into effect or on the renewal date of the policy.

In these circumstances, the policyholder typically has not paid any new premiums, so there is no need for a refund. In addition, because the policy is not in force, there is no additional cost for cancelling the policy early or premiums owed.

Insuranceopedia Explains Flat Cancellation

The flat cancellation is treated differently than short rate or pro-rata cancellations and is the easiest way to end or terminate an insurance policy. Flat cancellations are much simpler than pro-rata and short rate cancellations because no money has changed hands, and there is no need to recalculate the insurance costs.

With the latter types, money has already been paid in advance, and so the unearned premium money needs to be dealt with. However, with flat cancellations, the insurance carrier and the policyholder simply part ways at the end of the contract.

An example of this is a term insurance policy for ten years. Once the ten years are up the agreement would be up for renewal, and new premiums would need to be collected. If no renewal is processed and no funds paid, the contract would simply end on the termination date with no further action from either party required.

There are times when a flat cancellation would be necessary from a customer's point of view. One such example is if a policy is no longer necessary. This may occur when selling the asset that is insurance and you don’t need the insurance anymore.

Alternatively, if you choose to take out a policy with a different company at the time of renewal you would want a flat-rate cancellation. 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.

On the other hand, there are also times an insurance company can flat cancel a policy. One situation is 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. In a flat cancellation, the insurance company informs the customer that no coverage will be provided and refunds the fee.

Policyholders transitioning between insurers should make sure they are covered at all times, as gaps in coverage will not be paid by either insurer. For example, if a home burns down after a flat cancellation of an insurance policy, the insurance company has no liability and isn’t required to offer coverage.

Related Reading

Go back to top