How is unearned premium handled if a policy is canceled?

When a policy is canceled, any unearned premium is typically refunded to the policyholder. Unearned premium refers to the portion of the premium that has been paid but has not yet been earned by the insurer because the coverage has not yet been provided for the time corresponding to that premium.

In most insurance practices, including life insurance in North Carolina, if a policyholder decides to cancel their policy, they are entitled to receive a refund for the unearned portion of their premium. This is based on principles of fairness and the acknowledgment that the policyholder has not received the full benefit of the coverage for which they initially paid.

The refund process ensures that the policyholder is not financially penalized for canceling a policy if the premium payments exceed the period of coverage already provided. Thus, the correct answer reflects the established practice where insurers return any unearned premium to maintain good customer relations and comply with regulatory standards.