Which term refers to the termination of a policy during the term by either party?

• A. Cancellation
• B. Nonrenewal
• C. Pro Rata Cancellation
• D. Territory

Answer: (A)

Cancellation is the term used for terminating a policy during its term by either party. This means the coverage ends before the expiration date, whether the insurer initiates it (for reasons like nonpayment or misrepresentation) or the insured requests it. When cancellation happens mid-term, the premium is typically refunded for the unused portion of the policy, calculated on a pro rata basis; some forms may use a short-rate calculation with a penalty. Nonrenewal, by contrast, ends coverage at the end of the current term and does not involve mid-term termination. Territory is unrelated to canceling a policy.