Cancellation of a policy is different from non-renewal

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Did you know that there is a difference between an insurer cancelling a policy and choosing not to renew it? Cancellation means termination of the policy. It can be done either by the insurer or the insured before the end of the policy period. However, the non-renewal case arises after a policy has served a period of a year or so. Here, it is up to the insured or the insurer to decide whether the policy could be renewed or not while it expires.

In this piece, we take a look at how these terms make a difference when you buy a general insurance policy (health insurance, auto insurance, etc). The rules are different for a life insurance policy.

There is a significant difference between the cancellation of a policy and non-renewal. “A policyholder has every right to cancel a policy at any given point. This is subject to terms and conditions presented in the contract,” said Inderneel Chatterjee, co-fou-nder, RenewBuy Insurance.

On the other hand, an insurer can cancel a policy on non-payment of insurance premiums, misinterpretation or concealment of facts.

Rakesh Goyal, director, Probus Insurance, said, “The insurer cannot cancel any policy bought by the insured post 60 days of the policy being in force, except in situations wherein serious fraud or misrepresentations have been identified or the insured has failed to pay the premiums.”

Non-renewal means the refusal to renew the policy coverage either by the insurer or the insured, which may be done by either party on the policy expiration date. For instance, if you had filed too many claims in a year, then there can be a chance your insurer might not renew your policy in the current year, looking at your claims record.

However, the insurer usually gives a notice period and explains the reason for not renewing before it does so.

“The insured can get in touch with the insurer in case of any queries related to non-renewal. There can be situations wherein the insurer has dropped the line of policy because of which it cannot be renewed. In case of fraud or unacceptable activities, the insurer holds the right to deny the renewal,” said Goyal.

Further, if your insurer has not renewed your policy for some reason, then you might not necessarily be charged a higher premium while buying a policy from another insurer.

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