How are unearned premiums handled when an insured cancels a health policy by submitting a written notice to the insurer?

When an insured cancels a health policy and provides written notice to the insurer, the handling of unearned premiums is typically done on a short-rate basis. This means that the insurer will refund a portion of the premiums paid by the insured, but not the full amount. The rationale behind this approach is that the insurer incurs certain administrative costs and potential risk exposure during the policy term, which are taken into account in calculating the refund.

In the short-rate cancellation method, the insurer keeps a portion of the premium as a penalty for early cancellation, leading to a refund amount that is less than what would be returned on a pro-rata basis. The pro-rata method would return the insured the full amount of unearned premiums based on the time remaining in the policy period, which is not typically how most health insurance policies operate under cancellation terms.

By understanding this distinction, it's clear why the correct approach in most cases of policy cancellation involves the short-rate method of refunding the unearned premium. This practice reflects the costs incurred by the insurer when the policy is originally issued and maintained.