Illinois Property and Casualty Practice Exam

A personal property policy can be cancelled for various significant reasons, reflecting the underlying principles that govern insurance contracts. Misrepresentation refers to the act of providing false information or failing to disclose important facts during the application process or at any time during the policy's term. If an insurer discovers that the insured provided misleading information that affects the risk assessment, this can justify cancellation.

Nonpayment of premiums is a straightforward basis for cancellation, as failure to pay the required premium directly affects the policy's validity. Insurers rely on premiums to manage risk and fund potential claims, so not meeting this obligation creates grounds for cancellation.

An increase in the risk of the insurer can occur when the circumstances surrounding the insured property change in a way that elevates the potential for loss. This could involve significant alterations to the property, such as engaging in hazardous activities or failing to maintain the property adequately. Changes that increase the risk without notifying the insurer can lead to cancellation because the insurer may not be able to manage that increased exposure.

Thus, all these reasons—misrepresentation, nonpayment of premiums, and increased risk—are valid grounds for cancelling a personal property policy after being in effect for one year. The inclusion of all these factors into one option addresses the comprehensive nature of insurance risk