Market & Policy · Insurance Term
Cancellation
Definition
Cancellation is the ending of an insurance policy before its expiration date, either by you or by the insurer. You can generally cancel any time; an insurer can cancel only for reasons and with advance notice allowed by the policy and state law.
In Plain English
When you cancel, the insurer refunds unearned premium, often on a pro rata basis, though some policies use short-rate cancellation that keeps a penalty. Surplus lines policies often carry minimum earned premium, which may limit any refund.
Insurers usually cancel for nonpayment, fraud or a major change in risk, such as a building becoming vacant. They must send a notice of cancellation in advance, and lenders named on the policy are typically notified too. This is different from nonrenewal, which ends coverage at the end of the term.
If a policy is financed, the premium finance company can cancel it for missed payments. Watch for notices and respond quickly; a lapse can breach your loan and lease requirements.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical: an owner sells a building six months into a one-year policy that cost $24,000. If the policy refunds on a pro rata basis, the refund would be about $12,000. If the policy has a minimum earned premium or short-rate terms, the refund could be smaller.
Why It Matters for Texas Property Owners
Texas law and the Texas amendatory endorsements attached to many admitted policies limit when and how insurers may cancel commercial coverage and set notice periods. Surplus lines policies may follow different terms, so read the cancellation section of each policy.
What to Watch For
- Read the cancellation clause and any minimum earned premium before binding.
- Keep mailing addresses current so you receive notices.
- If the policy is financed, set up reminders for every installment.
- Line up replacement coverage before canceling an existing policy.
Last updated October 14, 2026 · Primesure editorial team · How We Write