Cancellation Qualifying Reasons/RC 05

Reason Code 05: Invalid Payment

This reason code applies when a policyholder’s payment is returned due to insufficient funds, rejection, or dispute. The policy is nullified as of the effective date since no valid payment was received to bind coverage.

Condition	Details
Eligibility for Cancellation	A policy may be nullified if the initial premium payment is returned, rejected, or disputed, meaning no valid payment was received to support coverage.
Effective Date of Cancellation	The policy is nullified from the effective date of the policy term.
Policy Terms Eligible for Refund	Current policy term only.
Type of Refund	A full refund, including surcharges and fees, is provided if payment was invalid and no claim was paid.
Required Documentation	Notice of returned or rejected payment from the bank or payment processor.

This table can be seen on page 6-10 of the FIM.

Additional Guidance

• If the policyholder’s payment fails due to insufficient funds, the insurer will cancel the policy with no refund.
• If the agent advanced funds before receiving payment from the policyholder, this reason code does not apply.

Required Documents

To process this cancellation reason, underwriters must verify the documentation provided.

• A copy of the notice of returned, rejected, or disputed payment.

Document Gallery

• Bank Notice: Document indicating the returned or rejected payment.
• Payment Dispute Record: Proof of chargeback or payment dispute.

Scenarios for Context

Scenario 1:
A policyholder’s check payment is returned for non-sufficient funds. The insurer receives notice from the bank and nullifies the policy from inception, issuing a full refund.

Scenario 2:
A policyholder disputes an electronic payment, and the payment processor reverses the transaction. The insurer processes the nullification and refunds the policyholder in full.

This page contains details about NFIP Cancellations. Find more in the How To Cancel section of the NFIP Flood Insurance Manual.