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Example: Policy Cancellation
This example shows how policy cancellation affects policy structure, transactions, and billing for a simple health policy.
Scenario Overview
Evergreen Textiles provides health insurance for its employees. The policy includes medical and dental coverage with associated taxes and fees. The policy is issued, endorsed mid-term, and later cancelled before the policy expiration date.
Account Setup
- Create an Account for Evergreen Textiles.
- Create a Contact and assign it as the Bill To Contact.
Policy Structure
- Policy: Health Policy
- Medical Coverage
- Standard Premium: $2,400
- Medical Tax: $240
- Admin Fee: $120
- Tax on Admin Fee: $24
- Dental Coverage
- Standard Premium: $1,800
- Dental Cover Tax: $100
The tax on admin fee uses the admin fee as the parent surcharge, which places the tax under the fee in the transaction breakdown.
- Billing Configuration
- Billing Timing: Arrears
- Other billing fields inherit org-level defaults.
Policy Issuance
Issue the policy after completing the policy structure and billing information.
Policy issuance creates policy transactions and transaction detail records for premiums, fees, and taxes. The transaction breakdown shows the tax on admin fee under the admin fee line.
Policy Endorsement
Start an endorsement to add coverage during the policy term.
- Add Vision coverage with a standard premium of $600.
- Add a tax of $60 on the Vision coverage.
- Enable Proration Allowed and Refund Allowed on the new coverage and tax.
Issue the endorsed policy to apply proration and generate endorsement transactions.
Policy Cancellation
Cancel the policy before the policy expiration date.
- Enter a cancellation effective date within the policy term.
- Confirm the cancellation.
Coverage ends on the cancellation effective date. Proration applies across all coverages, fees, and taxes, including tax on fee. Transactions reflect earned and unearned amounts based on the cancellation date.
Billing Impact
Cancellation transactions adjust billing schedules created from earlier policy transactions. Depending on billing timing and refund settings, billing generates credits or offsets for unearned amounts.
Review transaction breakdowns, billing schedule groups, and invoice previews to confirm that cancellation amounts align with expectations.
