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Auto insurance terms explained


For explanations of policy coverages please go to our What is covered by auto insurance section

Insurance policy terms and conditions are as stated in the actual insurance policy wordings. Nothing stated herein is intended to modify any part of an insurance policy. If you have a specific question of significance to your situation contact your insurance advisor.

Auto insurance policies can be cancelled for various reasons. The insurance company must have a reason to do so. The insured can cancel a policy for any reason.

Cancellation by the insurance company:

Mid term:

A mid term cancellation is the term used to describe the termination of coverage before the expiry date stated in the policy. This is most often done by the insurer because the premium has not been paid.

Other reasons would include a meaningful change in the auto or the way the auto is used, unexpected information comes to the attention of the insurer (for example: the discovery that a driver has many unreported driving convictions (tickets) or the discovery that an auto the applicant said was being used for "pleasure driving only" is actually used for something quite different (such as a taxi).

The applicant/insured would be notified of the cancellation by registered mail with a minimum of 15 days notice.

Any paid but unearned premium would be returned. Unearned premium would be calculated based on the number of days coverage remaining until the regular expiry date of the policy and the amount of premium being charged per day for the coverage.

At the expiry date:

This type of cancellation is also called "lapsing" and is usually done for any one of the following reasons:

The precise number of tickets or accidents varies by insurer.

In the first example, your notification will come from your broker often by way of a letter offering coverage with another insurer. You can usually continue with your old insurer through another broker.

In the other two examples, your notification will also come from your broker by way of letter offering coverage from another insurer, but the new insurer may be the Facility Association.If this happens your premium will probably be much higher than what you were paying. See also our section of Facility Association. Shop around, if your situation is not too bad, you might find an insurer that specializes in "high risk" drivers. Also, slow down! Drive carefully! Above all, be absolutely accurate about your record on any application.

All the premium paid has been earned in these situations, so nothing is returned to you.

By the insured:

Mid term:

This is usually because the insured has sold the auto without replacing it or has moved out of the province. Notification to the insurer must be in writing stating the date the policy should be cancelled and it must be signed by the insured. If the auto is leased or there is a loan against it, the lessor or the lender must also sign a document confirming that they agree that the policy can be cancelled. Remember, this is a legal document so all parties to it must agree that it is to be cancelled.

Any premium that is to be returned to the insured is calculated on a "short rate" basis which penalizes the insured for stopping the policy early. The amount of the penalty declines as the early cancellation date moves closer to the regular expiry date of the policy.

At the expiry date

This is most often done when the insured wants to move to another insurer or broker. The insured only needs to return the renewal document and tell the insurer or broker that it is not required. No reason needs to be given, however, all of the renewal documents including the liability slips should be returned BEFORE the renewal date to avoid being invoiced for coverage you did not want.

All premium paid by you in respect to the renewal is returned to you in full as long as the documents are returned before the renewal.

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