Question

Is flat cancellation an option for every insurance contract?

Answer
By Insuranceopedia Staff | Last updated: June 13, 2023

Let’s start this off by first talking about what it means to flat cancel an insurance contract. To flat cancel an insurance contract means to cancel the insurance contract before that contract’s effective date. The timing is significant because it means that the insuring company has not assumed any liability under the contract, since the contract has not begun. As such, the insured (customer) is entitled to a full refund of any premiums paid without any deductions of any kind. This stands in contrast to pro-rata cancellations and short-rate cancellations, which are discussed in other parts of this site.

Based on the meaning of flat cancellation, it is clear to see that this is an option for any insurance contract as long as the policy has not gone into effect yet. Once the policy has gone into effect, any cancellation will have to be done on a pro-rata or short-rate basis, wherein the insurance company will retain some of the paid premium for administrative costs and the cost of assuming partial liability.

In general, flat cancellations only occur when the insured decides not to renew the policy. Any errors in the issuing of the policy would result in a void policy before the policy even went into effect.

While this is by no means standard procedure, I have also heard of a dispute between an insured and the insurer that resulted in both parties settling via a flat cancellation of the policy. Again, I want to stress that this is not a typical case and there was most likely extenuating circumstances that lead to this type of resolution.

Share this

  • Facebook
  • LinkedIn
  • Twitter
Insuranceopedia Staff
Whether you're facing an insurance issue or just seeking helpful information, Insuranceopedia aims to be your trusted online resource for insurance-related information. With the help of insurance professionals across the country, we answer your top insurance questions in plain, accessible language.

More Q&As from our experts

Term of the Day

Insurance

Insurance is a financial arrangement in which one party pays another to protect itself from a particular loss. Insurance…
Read Full Term

Stay informed with Insuranceopedia!

The world of insurance can be complicated. Subscribe to the Insuranceopedia newsletter and stay in the know! Access expert content, industry term definitions and answers to your questions from knowledgeable insurance insiders. Arm yourself with what you need to know to keep your assets and your family safe.

Go back to top