If a policyholder cancels their policy and requests a refund, which type of premium may come into play?

If a policyholder cancels their policy and requests a refund, which type of premium may come into play?

• A. Deposit premium
• B. Unearned premium
• C. Written premium
• D. Earned premium

Answer: (B)

When a policyholder cancels their insurance policy and requests a refund, the concept of unearned premium becomes relevant. Unearned premium refers to the portion of the premium that has been paid but has not yet been "earned" by the insurance company because the coverage period has not been completed. When a policy is in effect, the insurance company earns the premium over time as it provides coverage. If the policyholder cancels before the end of the policy term, there is still a part of the premium that has not been earned by the insurer. Consequently, this unearned premium is typically eligible for a refund to the policyholder upon cancellation of the policy. In contrast, earned premium represents the portion of the premium that corresponds to the time the insurance coverage has been provided and thus is not subject to refund. Deposit premium is more related to the initial amount paid at the inception of the policy, while written premium refers to the total premium amount stated in the policy and does not directly connect to refunds upon cancellation like unearned premium does.

When a policyholder cancels their insurance policy and requests a refund, the concept of unearned premium becomes relevant. Unearned premium refers to the portion of the premium that has been paid but has not yet been "earned" by the insurance company because the coverage period has not been completed.

When a policy is in effect, the insurance company earns the premium over time as it provides coverage. If the policyholder cancels before the end of the policy term, there is still a part of the premium that has not been earned by the insurer. Consequently, this unearned premium is typically eligible for a refund to the policyholder upon cancellation of the policy.

In contrast, earned premium represents the portion of the premium that corresponds to the time the insurance coverage has been provided and thus is not subject to refund. Deposit premium is more related to the initial amount paid at the inception of the policy, while written premium refers to the total premium amount stated in the policy and does not directly connect to refunds upon cancellation like unearned premium does.