When a contract is terminated by the insurer or the insured before its normal expiration, what is this called?

When a contract is terminated by either the insurer or the insured before it reaches its normal expiration date, this process is known as cancellation. In insurance terminology, cancellation refers specifically to the mutual agreement or unilateral action that ends the insurance policy prior to the designated end date.

This can occur for several reasons, such as non-payment of premiums, changes in risk, or the insured's decision to select a different provider or adjust coverage. It involves a formal notice that communicates the termination to the other party involved and typically must adhere to certain legal requirements based on state regulations and the terms outlined in the policy.

Understanding the concept of cancellation is crucial for those in the insurance field as it affects coverage status, obligations of both parties, and the potential for refunds or penalties related to any unearned premium.