How can insurance policies be terminated?

Insurance policies can be terminated in several ways, and the correct answer highlights the primary methods through which this can occur. Cancellation refers to a situation where either the insurer or the policyholder decides to end the policy before its expiration date. Nonrenewal occurs when the insurer chooses not to renew the policy at the end of its term, which can happen for various reasons, such as changes in risk or claims history. Allowing a policy to lapse typically happens when the policyholder fails to pay premiums, leading to the automatic termination of coverage.

Understanding these methods is crucial, as they reflect the contractual nature of insurance agreements and the rights and responsibilities of both parties involved. This comprehensive view of termination mechanisms helps policyholders recognize the implications of their actions or those of the insurer regarding their insurance coverage.