Which statement about the insurer's obligations after a policy is canceled is true?

When an automobile insurance policy is canceled, the insurer's obligation regarding premiums is guided by the concept of unearned premium. This refers to the portion of the premium that has been paid for coverage that has not yet been utilized, typically calculated on a pro-rata basis. Therefore, upon cancellation, the insurer retains a portion of the unearned premium as compensation for the coverage provided up until the point of cancellation.

This approach ensures that both the insurer and the insured are treated fairly. The insurer is compensated for the risk it has taken on for the coverage period that has elapsed, while the insured is entitled to a refund of the remaining premium that corresponds to the unused portion of the coverage. This statement aligns with the practices governed by insurance regulations in Ontario.

Other options may present misunderstandings about the insurer’s responsibilities. Full refunds of all premiums paid might overlook the concept of unearned premium that exists due to prepaid coverage. Not needing to respond to cancellations entirely dismisses the insurer's duty to address policy changes and ensure proper communication. Finally, stating that an insurer is obligated to renew a policy after cancellation does not accurately reflect the discretionary nature of policy renewals. Each of these aspects reinforces why retaining a portion of the unearned premium appropriately reflects the obligations of the