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Cancelling my policy

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People who apply for and obtain insurance cover are often under a misapprehension as to what the insurer's rights to cancel that policy may be. The belief is, not unreasonably, that an insurer cannot cancel the policy unless the insured stops paying the premium or otherwise due to a breach of a term or condition of the policy.

They are only partly right. True, an insurer may in terms of the policy contract have a right to cancel immediately in the event of certain breaches of contract. However, an insurance policy is a contract like any other contract, in that it can give either party the right to cancel on the giving of notice - and that right to cancel on notice is one that can be exercised without giving any reasons and without having to rely on any breach of the policy.

The insured, if s/he wants to change Insurers may cancel the policy by giving the insurer a proper period of notice (usually a month) as provided for in the policy document. There is no difference between this situation and the case where a tenant gives his landlord proper notice that he is leaving in terms of the lease. No reasons are required by either party to cancel the policy.

Where an annual premium has been paid in advance, cancellation by the insurer, if permitted in terms of the policy, may involve a duty to refund the insured a portion of the premium, but that is all, and does not affect the right to cancel. This does not mean that if the property is destroyed or lost before the end of the policy period, that there will be any refund.

Unfortunately, especially in today's conditions, the exercise of this right by the insurer can bring about a situation which severely affects the insured's ability to replace the cover elsewhere. Your new proposed insurer will ask you about any previous claims or losses and also about any cancellation of a previous policy. You are obliged to give the insurer this information and it may result in a refusal by the new insurer to take you on. The best way to attempt to overcome this is to mention the previous cancellations "up front" and before the insurer asks you about it and to give the new insurer full details of your previous insurance history.

It is like a bank closing your account or refusing to extend your credit facilities. To have to tell a new proposed insurer that a previous policy or policies have been cancelled (which is information that is asked on most proposal forms) is definitely a disincentive to the new insurer, who tends to assume that it means that in some way you were thought to be too great a risk to the previous insurer. Sometimes this may be a correct assumption but by no means always.

If you can prove that a previous insurer, without justification, actually informed a new proposed one that you were a bad risk and implied that you were dishonest, prone to fraud, or even "too claim-prone", then perhaps you have a right of action against that insurer. But, as in other business and credit spheres, such a right is very difficult to establish and prove in a Court of Law.

Finally, when you decide that you want to cancel your insurance, please make it absolutely clear to your insurer from what date you want the cover to be cancelled and if possible, record your instructions in writing.

If you ask them to cancel "immediately", then even though you are obliged to give a month's notice, they may in fact accept that you want immediate cancellation and send you the unexpired portion of any premium you have paid in advance.

What this means is that you are immediately uninsured in circumstances when you may have thought that you did not need to take out replacement insurance until the end of the month. If an accident happens and a claim arises during that period, the Insurer who has cancelled the policy will not be obliged to meet it and the Ombudsman has had to advise many claimants that under these circumstances, unfortunately, their complaint is not legally sound.