Mid Term Rewrite

A mid-term rewrite in insurance refers to replacing an existing insurance policy with a new one before the current policy’s expiration date. This means the original policy is canceled, and a new policy takes over, typically with a new policy term that aligns with the remaining time on the original policy.

Here’s how it usually works

Reasons for a Mid-Term Rewrite

• Significant Change in Circumstances: A major change in the insured’s situation might necessitate a different type of coverage or different limits. Examples include a change in marital status, a new home purchase, or starting a business.
• Better Offer: The policyholder may find a new policy with significantly better coverage, lower premiums, or more favorable terms that make switching worthwhile even before the current policy expires.
• Dissatisfaction: The policyholder may be extremely unhappy with their current insurer’s service or claims handling

Process

• Application: The policyholder applies for a new policy with the same or a different insurer.
• Underwriting: The new insurer underwrites the application and assesses the risk.
• Pro-Rata Cancellation: The existing policy is usually canceled on a pro-rata basis, meaning the policyholder receives a refund for the unused portion of the premium.
• Policy Issuance: The new policy is issued with an effective date that coincides with the cancellation date of the old policy.
• Distinction from Full Term Rewrite: In a full term rewrite, the new policy starts a brand new policy term. In a mid-term rewrite, the new policy typically aligns its term with the remaining time on the original policy.

Example

A driver has an auto insurance policy with an expiration date of December 31st. In June, they find a much cheaper policy with a different insurer. They apply for the new policy, and it’s issued with a new effective date of June 15th, the same day their old policy is canceled. The new policy will then also expire on December 31st.

Key Considerations:

• Potential Fees: There might be fees associated with canceling the existing policy mid-term.
• Policy Benefits: Rewriting might affect benefits accrued under the old policy, such as claims-free discounts or loyalty rewards.
• Mid-term rewrites can be a good option for policyholders facing significant changes or who find substantially better offers. However, it’s important to weigh the potential costs and benefits before making the switch.