Question

The given statement 'it is refunded on a pro rata basis. according to the cancellation provision (an optional uniform provision), if the insurer cancels on the insured, unearned premiums are refunded on a pro rata basis' is true.

Answer 1

The statement is true, and unearned premiums are refunded on a pro rata basis when the insurer cancels on the insured.

Step-by-step explanation:

The given statement is accurate. When an insurer cancels on the insured, unearned premiums are refunded on a pro rata basis. This means that the insured will receive a refund for the unused portion of the premium they paid.

For example, suppose a person pays an annual insurance premium of $1,200 and cancels after six months.

If the insurance company uses a pro rata refund method, the insured would receive a refund of $600, which is half of the premium they paid.

This provision ensures that the insured is not penalized financially if the insurer cancels the policy and helps maintain fairness in the insurance contract.