What might a pro rata cancellation clause provide for the insured?

What might a pro rata cancellation clause provide for the insured?

• A. A full refund regardless of time
• B. No refund if canceled early
• C. A refund based on unearned premium
• D. Additional coverage upon renewal

Answer: (C)

A pro rata cancellation clause allows for a refund based on unearned premium, which is the amount of premium that has been collected but not yet earned by the insurer at the time of cancellation. When a policy is canceled pro rata, the insured receives a refund for the portion of the premium that corresponds to the time remaining on the policy. This means if the policy is canceled halfway through the coverage period, the insured is entitled to half of the premium they paid back, ensuring they are only paying for the coverage they actually used. This is a fair approach, as it takes into account the time the policy was actually in effect. If the insured chooses to cancel their policy, they are not penalized for that decision and are instead refunded a proportional amount based on how much of the policy period has been utilized. Other options do not align with the purpose of a pro rata cancellation clause.

A pro rata cancellation clause allows for a refund based on unearned premium, which is the amount of premium that has been collected but not yet earned by the insurer at the time of cancellation. When a policy is canceled pro rata, the insured receives a refund for the portion of the premium that corresponds to the time remaining on the policy. This means if the policy is canceled halfway through the coverage period, the insured is entitled to half of the premium they paid back, ensuring they are only paying for the coverage they actually used.

This is a fair approach, as it takes into account the time the policy was actually in effect. If the insured chooses to cancel their policy, they are not penalized for that decision and are instead refunded a proportional amount based on how much of the policy period has been utilized. Other options do not align with the purpose of a pro rata cancellation clause.