Flat cancellation refers to when the policyholder cancels their policy on the effective date, which is the documented day that the policy is either due to begin or on the renewal date.
Under flat cancellation rulings, the policyholder will not have paid or started to pay any new premiums, so the need for a refund is non-existent.
Furthermore, as the policy is inactive, there are no charges presented to the insured for early cancelation.
Typically, flat cancellation would be used when a policy simply isn’t necessary or required anymore.
For example, when a business sells a product that needs insurance, the buyer no longer requires cover on the said product.
What Are the Different Cancellation Methods?
Here are the different main types of cancellations are short rate cancellations or pro-rata cancellations, flat cancellations.
In comparison to short rate cancellations or pro-rata cancellations, flat cancellation is different, being classified as the simplest and easiest way to terminate an insurance policy.
The key reason why flat cancellations are more straightforward is that there is no reason to recalculate any insurance costs or reimbursements since no money has been transferred between the insurer and the insured.
However, with the others, there’s a possibility that payments could be paid in advance, so calculating the unearned premiums and providing a refund must be dealt with before complete cancellation.
Key Insight: Flat cancellation is the preferred method of the three because there are no refund calculations to consider. The policyholder and insurer simply terminate the contract.
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