Cancellation notice
A cancellation notice must be sent to all life insurance policies and life insurance annuities except for,
- Traded life insurance policies
- Life insurance policies for six months or less
- Policies where the customer, at the time they sign the application, is habitually resident in an EEA state other than the UK, or outside the EEA and is not present in the UK
- Pure protection contracts affected by the trustees of an occupational pension scheme, and employer or a partnership to secure benefits for employees or the partners in the partnership.
- Life insurance policies issued to corporate bodies (other then pension scheme trustees)
Where a life insurance policy has been varied and the premium has increased by more than 25% then there must be a cancellation notice.
The notice can be sent by post or electronically to the policy holder (not the intermediary) during the 14 days after conclusion of the contract. This period is reduced to 8 days for a single premium contract. If the policy is an industrial life policy then the cancellation notice can be delivered to the policyholder
When the policy holder is a trustee and the life office has reason to believe that the trustee is holding the policy and acting for the benefit of the beneficiary then the notice should also be sent to the beneficiary.
The notice is not valid if it is sent out late and the life office can not deduct any shortfall on delayed cancellation as a result of this. If the life office fails to send out the notice then the policyholder can cancel the policy any time within the first two years.
There is no prescribed format for the notice but it must be clear, timely, comprehensive and prominent in its intentions. You would expect it to contain the following details,
- The right to cancel and when it begins and ends
- The steps the investor must take to cancel the contract
- The consequences of cancellation
- Any shortfall costs the investor may have to bear; and
- That the investor is entitled to key features
The cancellation notice letter may have a cancellation form attached to it.
The intention of the notice is to make certain that the policyholder is aware that they have a certain amount of time to withdraw from the life insurance contract without incurring any penalties. The notice would most likely provide the policyholder with a contact point in case they wanted to ask any more questions.