INSURANCE RENEWAL

The continuous existence of an insurance policy is subject to renewal, depending upon the duration of the policy. In most types of policies, the insurance is expressly stipulated to be for a period that does not normally exceed one year. It may however, be for a shorter duration. The exception is life insurance where insurers are bound to accept the renewal premium from the policy holder as long as they wish, with unconditional acceptance such as imposition of special terms, following the discoveries of new material facts which cannot be traced to have been in existence at the inception of the policy. This is to say that renewal in life assurance policy and some other long term insurance is automatic while it is not automatic in case of non-life insurance. Renewal is not automatic but subject to negotiation.

In life insurance policy, the mode of payment usually depends on the arrangement made with the insurer by the insured which may be on yearly (every 12 months), quarterly (every 3 months), or half yearly (every 6 months) basis. However the insurance policies relating to fire, burglary, motor, and good-in-transit (non-life) are annual insurance policies which run for a period of twelve months and would require to be renewed for another period of twelve months. The principle of utmost good faith applies at renewal and the insured is obliged to disclose any material alteration on the risk.

In indemnity, policies such as fire, motor vehicle, liability insurance, the contract terminate automatically on the expiry date, unless renewed. The right to renew is not an implied term of the contract. It must be expressly stated in the contract. There is no obligation on the part of insurer to send a renewal notice but in practice, they usually allow a period of grace within which the premium must be paid.

It is believed that the renewed insurance policy is a new contract separate from the original policy. There is no law that made it mandatory for both of them (the insured and the insurer) to renew the insurance contractual relationship between them.

 

PROCEDURE FOR RENEWAL NOTICE

The usual practice by insurance companies is that they issue a renewal notice in some weeks to the date that the policy will expire. The purpose of renewal notice is to remind the insured on when his policy will expire and the renewal premium expected to be paid. This will prevent the insurance policy from being lapsed due to the failure of the insured in remembering the date the policy will fall due for renewal.

Usually a renewal notice is a brief document that contains few information as regards the risk at hand. The information includes:

1. The name of the insurance company with the address.
2. The name of the insured.
3. The address of the insured.
4. The policy number.
5. The type of insurance.
6. The sum insured.
7. The possible renewal premium.

 

There is often a perforated remittance slip attached showing policy number, insured’s name and premium, and the insured should detach the slip to be forwarded with his remittance.

The renewal notice issued by the insurer usually contains an advice to the insured whether there are changes to be effected during renewal such as additional feature of the risk and changes in sum insured. It also contains a statement advising. for adequacy of the sum insured to reflect the present economic situation in the country.

 

LEGAL STATUS OF RENEWAL NOTICE

It has been stated earlier that a renewal does not have any legal requirement but the wording of the notice shows the legal stand of the notice. The wording of the notice that acts like a reminder may read like “This is to remind you that your policy expires on particular date” and does not have any legal purpose. It is left for the insured to renew the policy or not.

A notice which invites an insured to renew is legally recognized as an offer which only requires an acceptance of the offer.

 

DAYS OF GRACE

The period of which cover is granted by the insurer without payment of premium by the insured is referred to as days of grace. These are number of days allowed under an insurance policy after the expiry date which are given to the insured to make renewal of the policy. The insured is expected to forward the renewal premium within the days of grace.

It merely gives the insured extra time to exercise his option to reinsure with same insurer. The pertinent question that arises in connection with days of grace is whether the insurer will be liable for a loss within the days of grace. The insured is entitled to claim if the event insured against occurred during the period of days of grace before the payment of renewal premium. But this privilege will be lost if the insured has shown an intention to discontinue the policy which must have been communicated to the insurer. Days of grace ranges from 14 days to 30 days depending on the class of insurance involved. The use of days of grace is usually common in long term insurance contract. The days of grace are not allowed in some classes of insurance like marine insurance, motor insurance, burglary insurance, fire insurance and livestock insurance.

 

LONG TERM AGREEMENT

This is an arrangement between the insured and the insurer to ensure that the renewal of insurance contract continues for at least a certain number of years (usually five years). The agreement is usually made at the inception of the policy where the insured will be given a discount of about 7% which guarantees reduction in the renewal fee payment by the insured in the next five years. The insured is expected to comply with this agreement by renewing his policy with the insurer based on the existing terms and conditions of the policy. Should the insured fail to offer the business for renewal, strictly speaking, the insurer has the right to claim back the discount allowed in the previous years.

The following are the obligations on the part of insured and insurer where there is long term agreement:

On the part of insured: to offer renewal each renewal date on the same term as applying in the immediately preceding year of insurance.

On the part of the insurer: if they accept the insured offer, to grant the agreed discount.

It is important to note that the insurer can improve on the terms and conditions of the policy if he so wishes. The insured is not mandated to effect renewal based on long term agreement if the terms and conditions of the policy changes. For example, change in premium payable, alteration on the agreed terms and condition of the policy.

In the absence of the factors stated above, any insured that refuses to renew his policy in long term agreement has breached the insurance contract.

 

CANCELLATION

In many types of insurance policies, there is always a cancellation clause inserted into the policy. This allows either of the parties to the contract of effect cancellation based on the reason that can be considered essential to the contract. The reason may be any of the following:

1. The breach of utmost good faith.
2. The absence of insurable interest.
3. Disposal of subject matter of insurance.
4. Insurance policy with bad claim experience.

If any of the reasons stated above is the case of the insured, he will be entitled to full return of premium. But if the termination of the contract comes from the insurer, the insured is entitled to receive a ratable proportion of the premium for the unexpired term with effect from the date of cancellation.