Quora Answer: Why Would an Insurer Cancel a Policy?

The following is my answer to a Quora question: “Why would an insurance company cancel a policy?” 

Policies lapse when premiums are not paid.  Coverage ends when the period of coverage is over.  For a policy to be cancelled, however, normally means that the insurer discovers a material fact that would have affected underwriting when the application for coverage was made.  If the omission was due to a mistake, the policy is simply cancelled, and new coverage must be applied for.  If the omission was deliberate, there are likely to be legal consequences.  Examples of omission of material facts include falsified data, non-declaration of medical conditions, and discrepancies in the contract. 

Another reason why a policy may be cancelled, especially for investment plans, is when the company considers the transaction suspicious.  This includes a pattern of churning, constant top-up and partial withdrawals without a sound financial reason, or a beneficial ownership arrangement that is suspicious.  This pertains to money laundering, and the insurer is obliged to make a report to the authorities.