Under what circumstance can an insurance company cancel a policy?

• A. Nonpayment of premium
• B. Misrepresentation
• C. Fraud
• D. Change in address

Answer: (C)

The main idea being tested is that fraud, meaning knowingly providing false information or concealing material facts to obtain or maintain coverage, gives the insurer the right to cancel the policy. Insurance contracts rely on truthful disclosures to assess risk and set premiums. When someone commits fraud, the contract is entered into based on deception, so the insurer can cancel or void the agreement because it can’t continue under false pretenses.

Nonpayment of premium is a common reason a policy lapses, but it’s about failing to pay rather than the honesty of the information provided. A change of address by itself doesn’t cancel a policy; it may require updating information but doesn’t automatically terminate coverage. Misrepresentation can be a ground for cancellation if it’s material, but fraud is the clearest, most definitive breach that justifies canceling the policy.