What kind of refund is typically required in the case of company cancellation of an insurance policy?

When an insurance policy is canceled by the company, the typical requirement is for a pro-rata refund of the unearned premium. This means that the policyholder is entitled to a refund that is proportional to the amount of premium paid for the coverage that was not utilized. For example, if an insurance policy covers a one-year term and is canceled after six months, the policyholder would receive a refund for the premium associated with the remaining six months of coverage that was not provided.

This approach is based on fairness, ensuring that policyholders are only responsible for the coverage they actually receive. Since the policy is canceled, the insurer has no obligation to provide coverage for the remaining term, and the policyholder should not have to pay for it. In contrast, other refund types like a full waiver of fees or no refund at all do not align with standard industry practices, which favor making the policyholder whole for the unused portion of their premium.