What happens if an insured cancels a perpetual mutual insurance policy?

When an insured cancels a perpetual mutual insurance policy, it is standard practice for a portion of the premium to be returned. This is because perpetual mutual insurance policies, unlike traditional fixed-term insurance contracts, provide some flexibility for the policyholder. Typically, these policies accumulate premium credits or dividends over time, and upon cancellation, the insurer may calculate the unearned premium that corresponds to the time period not covered by the policy. Hence, returning a portion of the premium is a reflection of fairness, considering the policyholder is no longer receiving coverage benefits for that duration.

This approach also encourages policyholders to maintain their insurance coverage without the fear of losing their entire premium investment if they choose to cancel. This transparency fosters trust in the insurance system and promotes equitable practices between insurers and insured individuals.