If a policy is canceled midterm with a refund of unearned premium, which cancellation form is in effect?

If a policy is canceled midterm with a refund of unearned premium, which cancellation form is in effect?

• A. Pro Rata Cancellation
• B. Cancellation
• C. Nonrenewal
• D. Territory

Answer: (A)

Pro rata cancellation is the form used when a policy is canceled midterm and the unearned premium is refunded on a proportional basis. This means the insurer returns the portion of premium for the time the policy was not in effect, reflecting coverage that ended partway through the term. If the insured cancels, the refund is typically on a short-rate basis (with a penalty), not pro rata. Nonrenewal ends at the policy’s expiration and doesn’t address midterm cancellation with a refund, and territory has no bearing on cancellation forms.

Pro rata cancellation is the form used when a policy is canceled midterm and the unearned premium is refunded on a proportional basis. This means the insurer returns the portion of premium for the time the policy was not in effect, reflecting coverage that ended partway through the term. If the insured cancels, the refund is typically on a short-rate basis (with a penalty), not pro rata. Nonrenewal ends at the policy’s expiration and doesn’t address midterm cancellation with a refund, and territory has no bearing on cancellation forms.