What occurs when a policy is canceled by one party before the expiration date?

When a policy is canceled by one party before its expiration date, it is referred to as cancellation. This means that either the insurer or the policyholder has taken steps to end the policy prior to its scheduled expiration, thus nullifying the coverage that would have been in effect until that date. The cancellation process can occur for various reasons, such as non-payment of premiums by the insured, or a decision by the insurer due to increased risk or claims.

In contrast, nonrenewal refers to the situation where a policy is not renewed at the end of the policy term, meaning that the coverage simply ends when the term is completed. Termination generally implies the final cessation of coverage, often after all conditions have been met or in specific circumstances outlined in the policy. Renewal involves the process of extending or rewriting a policy for a new term, usually under agreed-upon terms and conditions.

Understanding the distinction among these terms is crucial for comprehending the management of insurance policies and the rights and responsibilities of both parties involved.