What refund is due to the insured if their policy is terminated by the insurer?

When a policy is terminated by the insurer, the insured is entitled to a refund that focuses on the excess of the premium paid over the pro-rata premium for the time the policy was in force. The pro-rata premium is calculated based on the exact amount of insurance coverage provided during the time the policy was active, allowing the insurer to retain only the premium that corresponds to the coverage period.

This ensures fairness in the transaction; the insured is not penalized for the insurer's decision to terminate the policy. Instead, they receive back the portion of the premium that covers the unexpired portion of the policy. This amount is necessary to prevent the insurer from profiting from a policy that was canceled unwarrantedly. In contrast, a full refund or a refund based on short-rate calculations would not accurately reflect the proportional coverage used versus the premium paid, thus the pro-rata premium method is the most equitable solution.