Void

What is a void insurance policy?

When an insurance policy is void, it means that the policy isn’t legally enforceable. It means the policy offers no coverage to the party that purchased it.

When you buy a home or car insurance policy it often goes into effect immediately. However, if the insurer later discovers the policy is void, it means the coverage offered by the policy is not valid, and never was.

In the most basic terms, once an insurer determines an insurance policy is void, it’s like that policy never existed. Accordingly, the policyholder will receive a refund of any and all premiums they paid for the void policy.

Why would an insurance policy be void?

Void insurance policies are a rare occurrence. They only come about in a few specific circumstances, such as these:

Misrepresentation

Insurance works under the assumption that the insurance provider and the policyholder are both acting in good faith. The means the customer discloses all the information the insurer asks for (and does so honestly). For the insurer, it means paying claims and keeping customers informed in an honest manner.

A customer providing false information to an insurer, or withholding information they’ve asked for, is known as misrepresentation. If an insurance provider discovers misrepresentation, they will need to confirm whether it was severe enough to render the policy void. This would normally only happen in serious cases—known as material misrepresentation. In the legal world, something is said to be “material” when it’s essential to a contract. In addition to that, the provider would consider whether the misrepresentation was prejudicial—meaning it somehow put them at a disadvantage.

Let’s say someone misspells their name on an insurance application. The spelling of someone’s name is material to most insurance contracts. But it normally wouldn’t be prejudicial, because the insurance provider hasn’t been disadvantaged. Insurers don’t use the spelling of someone’s name to calculate premiums or determine coverage options, for example. An insurer would probably ask their customer to correct the misspelling and treat the policy as valid.

Prejudicial misrepresentations, on the other hand, most certainly render the policy void. Some common examples include:

Insurance is based on risk, and insurers need accurate information to calculate the premiums for each policy they sell. Increasing the risk associated with a policy means the price should increase, too. That’s why misrepresentation by the customer causes their policy to be void: if someone lies on their application to make the risk seem better than it actually is, they will underpay for that policy.

You can learn more about risk pricing and similar topics in our guide to calculating insurance premiums.

Insurance companies put a lot of effort into calculating how much they need to charge to cover the claims they expect to happen. If customers are underpaying, the insurer would risk having insufficient funds to cover the claims of other customers.

Ultimately, this would result in higher premiums for all customers—even the honest majority—due to a minority of customers’ decision to lie just to save a few bucks or get coverage they aren’t actually qualified for.

Failure to disclose material changes

It’s the duty of every insurance policyholder to report to their insurer changes that could have an impact on their coverage. That’s especially true for major changes like moving to a new home, moving out of a home and leaving it vacant until the sale, or adding a basement suite and having renters move in.

Like with misrepresentation, material changes are those that are crucial to the validity of an insurance policy.

In this example, Robert’s failed to inform his insurance provider of several things that were material to the policy: the occupancy of his home, and the extensive renovations. Robert didn’t disclose this major change in the risk, meaning he was underpaying for his insurance.

A rental suite presents many risks to the home that weren’t there before. The insurer would have needed to know about it to offer the right coverage at an appropriate price. Because he did not provide the insurer an opportunity to charge the correct premium, his policy became void the moment that this risk changed. Robert will now have to cover the cost of repairs out of his own pocket.

Is void insurance the same as cancelled?

It sounds similar, but a void policy is not the same as a cancelled policy. A void policy never existed, therefore no coverage was in force—even before the date it was discovered to be void. A cancelled policy, on the other hand, is valid up to the cancellation date.

That means, theoretically, a policyholder could still successfully file a claim against a cancelled policy. As long as the loss happened within the period that the policy was in force, the coverage still existed. On the other hand, it’s not possible to make a claim against a legally void policy.

Cancelling a policy is more common than voiding one. There are only certain circumstances (as we’ve gone over) that an insurer can legally uphold the determination that a policy is void. Most of the time, it’s more appropriate for them to cancel it instead.

Insurers have a fair bit of flexibility with cancellation. If they follow the legal process, they can cancel a policy for any reason. Not that they just cancel policies at random—cancelling a policy means ridding themselves of a paying customer. Most insurers have a predetermined list of reasons to cancel a policy, for example:

• non-payment of premiums
• too many claims in a short time span
• a major change in risk (even if they were informed about it)
• abusive or threatening behaviour towards the insurer’s staff

The cancellation process differs depending on the type of insurance and the provincial regulations. Much of the time, all an insurer needs to do is give the customer notice that their coverage will end in 15 days. They may also non-renew the policy, which is like cancelling it at the end of the policy term. In either case, the policy stays in force until the cancellation date.

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