Cancelling a life or health insurance contract An important decision
Whether for life, sickness or any other type of insurance, your needs can change and you may have to cancel your current coverage or replace it with new coverage. For example, if you get married or have children, your life insurance may no longer meet your needs.
The following information describes a situation where your existing life and health insurance policy is being replaced by a new policy proposed by a representative. Similar rules must be followed when a firm offers you by Internet a life and health insurance contract that replaces an existing one.
Inform your representative for adequate protection
When you meet with a representative, give him as much information as possible about your health, personal life and financial situation. He must have this information so that he can suggest coverage that fits perfectly with your needs.
What if my needs change?
If your needs change over time or due to life events, your insurance representative may suggest that you replace your insurance contract. You’ll need to ensure that your new insurance contract suits your needs better than the contract you have now.
First, your representative must try to maintain your existing insurance contract. This means that he cannot suggest replacing your contract before he has fully examined it in order to understand your current coverage and your needs.
If after examining your contract your representative recommends that you change or modify it, he must explain why you would be better off with a new contract. He must also explain the weaknesses in your current contract.
Is your representative or firm authorized to offer you an insurance product?
- Consult the Register of firms and individuals authorized to practise
- Contact an AMF Information Centre agent
- Send us a Request for information
This link will open in a new window
Did you know?
Representatives are generally paid when they sell a new insurance contract. If you are not sure, you can ask your representative how he’s paid. By law, he must answer you honestly.
End of the insightNotice of Replacement
When your representative gives you a new insurance contract, he must also give you a document called a “Notice of Replacement (pdf - 104 KB)This link will open in a new windowUpdated on August 16, 2022.”
This notice is designed to help you make an informed decision about your insurance contracts. It must provide a full comparison of your existing contract and the contract proposed by your representative. It must also contain all information available about your new contract and explain the reasons for the change.
Are you making the right decision by replacing your contract? Make sure that you understand the notice of replacement. If necessary, ask your representative questions. For example, ask him to explain the advantages and disadvantages of the new contract.
If the contract proposed by your representative replaces more than one of your existing contracts (e.g., life and disability insurance), the representative must give you a notice of replacement for each contract to be replaced.
Contract replacement risks
Before replacing an insurance contract, you need to know the risks involved. Here are a few things to keep in mind:
Incontestable clause
Let’s say death occurs within two years of the date on which the insurance contract comes into force. The insurer could refuse to pay the death benefit if the insured provided incomplete or inaccurate information regarding their health or lifestyle when filling out the application.
If death occurs after the two-year period, the insurer cannot refuse to pay the death benefit unless it can prove that the incomplete or inaccurate information was deliberately provided with the intent to commit fraud. That’s why, after two years, the insurance contract is said to have acquired incontestable status, as it is more difficult for the insurer to deny a claim on the basis of misrepresentation.
Important! Generally, when you replace an insurance contract, you have to wait another two years to benefit from its incontestable status.
Suicide clause
To prevent fraud, most life insurance contracts include a suicide clause. This clause states that if a person purchases a life insurance contract and commits suicide less than two years after signing the contract, the proceeds will not be paid to the beneficiaries. This period also returns to zero when you replace your life insurance contract.
Declarations of insurability
When you fill out an insurance application, you’ll often be asked questions about such things as your health. The amount of your insurance premium will then be determined based on your health, age and other factors.
If you terminate one insurance policy and then take out another one, you may be asked to answer the same health questions all over again. The premium amount may be based on your health situation and age at the time you purchase the new policy.
If you need an explanation of these clauses, ask your representative.
Important Precautions
Do not cancel your former contract before receiving your replacement contract and reading through it carefully to ensure that it is suitable.
If you are satisfied, sign it. You can then cancel your former contract. Your representative can help you with this. If you prefer to do it by yourself, contact your former insurer.
End of the warningHow to replace a contract
Here are the steps to follow if you agree to replace your contract:
- You and your representative must sign the notice of replacement.
- The representative must also prepare an insurance application (proposal). This document is your official request to the insurer for coverage.
- Read through the application carefully to make sure that you understand it. The information in the application must be accurate; otherwise the insurer could contest a request for compensation (claimIn the field of insurance, a claim is a request that an insured submits to their insurance company to receive an insured amount further to a loss.).
- Once the application is signed and sent to the insurer, you must wait for confirmation that the insurer has agreed to insure you. If the insurer does agree to insure you, you will receive your new insurance contract.
Any questions or dissatisfaction regarding this topic?
Contact us for information and assistance.
End of the Information