Insurance: voidance vs cancellation
Nthabiseng Moloi
Insurance is a contract and consumers must understand their obligations when they enter into it – and what the consequences of dishonesty are.
The insurer is wholly reliant on the insured to provide accurate information about the nature of the risk. As such, it’ll ask a vast amount of questions before the contract is entered into, and the insured is obliged to inform the insurer of any changes in circumstances once the policy’s in place.
Any breach of the good faith in the insurer/insured relationship will put their contract at risk.
Consumers must be aware of the consequences of such a breach. The difference between the voidance and cancellation of a policy should be particularly well understood.
Voidance
If, when a claim is made, the insurer discovers that the insured didn’t make a full disclosure, either by omission or untruth – like previous losses suffered or something else that would affect their risk rating – then it might void the policy. If a contract is voided, it’s as if had never been entered into.
The insurer would refund the premiums paid (less costs) and the claim wouldn’t be met.
Voidance is invoked when the contract was based on incomplete/incorrect information, due to dishonesty or just carelessness.
Cancellation
Much more serious is cancellation. An insurer will cancel a policy if it’s convinced that dishonesty occurred after a valid contract was entered into.
For example, a client stages a vehicle hijacking to get a full payout on a damaged car, or conceals the fact that an accident occurred on their way back from a pub.
In such cases, the insurer could decline the claim or cancel the policy. In cancellation, the premiums aren’t refunded. The cancellation becomes part of the insured’s insurance history, and must be disclosed every time they seek insurance.
Cancellation will make an individual a higher risk and insurance premiums will be raised accordingly. It may even become difficult to get insurance at all.
Nthabiseng Moloi is MiWay’s head of marketing & brand
Consumers must be aware of the consequences of a breach. The difference between the voidance and cancellation of a policy should be particularly well understood.