Receiving a letter in which the insurer communicates that it will not continue covering a car, a home, or a business usually generates an immediate doubt: can the company unilaterally cancel the policy? The answer depends on whether the contract is close to its expiration or if the entity intends to terminate it before that date.
As a general rule, an insurer can oppose the renewal of a policy, but it must communicate this in writing and with a minimum notice of two months. On the other hand, it cannot cancel the contract in the middle of the annual period without a legally provided cause or one validly included in the policy.
The non-payment of the premium, a relevant modification of the risk, or the existence of inaccurate data in the questionnaire may allow for the suspension or early termination of the contract. However, each case has its own deadlines and consequences.
The insurer must notify two months in advance
Most policies are contracted for one year and provide for automatic renewal for annual periods. The Article 22 of the Insurance Contract Law allows either party to oppose that extension.
The deadlines are not the same for both:
- The insurer must notify at least two months before the expiration.
- The policyholder can prevent the renewal by notifying one month in advance.
The communication must be made in writing. It can also be sent via a durable medium that allows for the content to be stored and reproduced without modifications. To avoid disputes, it is important that the company can prove both the sending and the receipt of the notification.
If the insurer's notice arrives late, in principle it cannot prevent the next extension when the contract establishes automatic renewal. The policyholder can claim that the policy be maintained during the new period, although the contract and the manner in which the communication was made must be analyzed.
The entity also cannot present what is actually a modification of the policy as a simple renewal. Changes in price, coverage, or contractual conditions must also be communicated two months in advance.
What happens if the premium is not paid
The non-payment should not be confused with an ordinary decision of non-renewal. Its effects depend on whether it is the first premium or a subsequent installment.
When the first premium —or a single premium— is not paid due to a cause attributable to the policyholder, the insurer may terminate the contract or legally claim the amount. Unless otherwise agreed, if a loss occurs before payment, the company may be released from indemnifying.
If a subsequent premium is not paid, coverage does not immediately disappear. The law establishes that it is suspended one month after the due date. If the insurer does not claim payment during the following six months, the contract is considered extinguished.
When the policy has not yet been resolved or extinguished, the payment of the premium reactivates the coverage 24 hours after it is paid. Before assuming that there is a non-payment, it is advisable to check if the receipt was presented correctly and for what reason it was returned.
The aggravation of risk can change or terminate the contract
During the validity of the policy, the policyholder or the insured must communicate any changes in the circumstances declared in the questionnaire that significantly aggravate the risk. These must be changes that would have led the entity to reject the insurance or to contract it under more demanding conditions.
This can happen, for example, when a home begins to be used for a professional activity, a premises substantially changes its use, or a vehicle is used for a different activity than declared.
Once informed, the company has two months to propose a modification of the contract. The policyholder has 15 days to accept or reject it. If there is no agreement, the insurer may follow the legal procedure to terminate the policy.
The entity may also communicate the termination directly in writing within the month following the knowledge of the aggravation. If the change is not declared and a loss occurs, the indemnity may be reduced proportionally. When there is bad faith, the insurer may be exempt from paying.
In personal insurance, there is an important exception: changes in health status do not have to be communicated during the validity of the contract and are not considered an aggravation of risk.
What happens if false data was provided when contracting
Before signing, the policyholder must truthfully answer the questionnaire presented by the insurer. The obligation is limited to the circumstances asked: if the company does not ask a specific question, it cannot later demand that the insured had spontaneously declared that information.
When the entity discovers a relevant reservation or inaccuracy, it can terminate the contract by means of a communication addressed to the policyholder within the month following its knowledge.
If the claim occurs before that communication, not all compensation is always lost. When there is no fraud or gross negligence, the benefit is reduced proportionally according to the difference between the premium paid and the one that would have corresponded to the actual risk. If the policyholder deliberately concealed or falsified the data or acted with gross negligence, the company may be released from payment.
What to do if the insurer communicates the cancellation
The first step is to check the exact expiration date, the day the notice was received, and the reason alleged by the entity. It is also advisable to keep the letter, the email, the envelope, the acknowledgment of receipt, and any communication exchanged.
If it is an ordinary opposition to the renewal communicated correctly, it will be necessary to seek another policy before the expiration. This is especially important when there is an obligation to maintain the insured risk, as is the case with civil liability for vehicles.
When the notice is late, the company intends to terminate the contract immediately, or the reason does not fit with the legal rules, the insured can file a complaint with the customer service of the entity. If it is rejected or no response is received within the corresponding period, they can go to the Claims Service of the General Directorate of Insurance and Pension Funds.