Alley Katz cancels her six-month auto policy exactly four months into the policy period. If her six month premium was $900,how much will she receive as a refund of unused premium from her insurer?
A)$300
B)$450
C)An amount less than $300, to reflect the short-rate cancellation penalty the insurer will impose
D)None of the above

Question

Quizplus · Accepted Answer

Since Alley Katz cancels her policy before the end of the policy period, the insurer will impose a short-rate cancellation penalty. This means that she will receive a refund of her unused premium that is less than half of the pro-rated amount. Therefore, her refund will be less than $450 and the correct answer is C.

Alley Katz Cancels Her Six-Month Auto Policy Exactly Four Months