What type of cancellation is a mid-term cancellation initiated by the insurer where the amount of unearned premium is NOT reduced?

• A. Short-rate cancellation
• B. Pro-rate cancellation
• C. Non-renewal cancellation
• D. Automatic cancellation

Answer: (B)

Mid-term cancellations involve how the unearned premium is handled when the policy is cancelled before expiration. If the insurer cancels and does not apply any penalty to the unearned premium, the refund is based strictly on the time remaining in the term—this is pro-rate cancellation. The insurer returns the portion of the premium that has not yet been earned, calculated proportionally to the time left, with no penalty deducted.

This contrasts with short-rate cancellation, where a penalty is applied and the refund of unearned premium is reduced by that penalty. Non-renewal isn’t a mid-term cancellation by the insurer in the same sense; it ends the coverage at term end without a mid-term cancellation. Automatic cancellation usually stems from a trigger like nonpayment. So the scenario described matches pro-rate cancellation.