When an insured cancels a policy prior to its expiration date, the insurance company will return a portion of the unused premium on a short rate basis.
The insurer will keep the earned premium plus an additional amount for policy writing expenses.
Answer A is correct. When an insured cancels a policy prior to expiration, the unearned premium may be returned on a short rate basis. This means that the company not only keeps the earned premium for the insurance provided, but also keeps an additional amount for expenses of issuing the policy.
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