When an insurance policy is issued, the company cannot cancel it, except for reasons clearly stated in the policy. State laws usually determine what an insurance policy can include in its cancellation policy. Usually, policies can only be cancelled for failing to make required payments. Insurance companies can choose to discontinue policies at the end of their term for any reason, except those deemed illegal. In many states, the company must give the policyholder a 30-day advance notice before the end of the term if it will not renew a homeowner’s or personal auto policy.

Generally, a policyholder can cancel an insurance policy by giving notice. In other cases, there may be a financial penalty for early cancellation. Many liability and property policies require a short rate penalty upon cancellation by the policyholder. This short rate penalty means that the insurance company keeps a disproportionate amount of the premium. In addition, many life insurance policies inflict surrender charges. These policies must be clearly state any surrender charges or cancellation fees.