What is the meaning of cancellation in insurance terms?

In insurance terminology, cancellation specifically refers to the termination of a policy before its expiration date. This action can be initiated by either the policyholder or the insurer for various reasons, such as non-payment of premiums or other breaches of the policy terms. When a policy is canceled, the coverage provided by that policy ends, and typically, the policyholder is entitled to a refund of any unearned premium for the remaining term of the policy.

Understanding this definition helps clarify that options relating to termination at its expiration date or continuation with reduced limits do not accurately capture the essence of cancellation. Similarly, the ability to modify policy terms does not relate to cancellation, as it suggests a continuation of coverage rather than its termination. Thus, recognizing cancellation as the premature ending of coverage is key in grasping the concepts of insurance policy management.