A policy can end in three ways:
Cancellation: the policy ends before its expiration date.
Nonrenewal: the insurer chooses not to continue the policy when the term runs out.
Lapse: coverage ends because the premium needed to keep it going was not paid. It comes from the insured's inaction, not from a reasoned notice by the insurer.
Premium is earned as time passes. Earned premium pays for coverage already provided; unearned premium is for the time still to come. Example: a $1,200 annual premium paid in advance is $300 earned and $900 unearned after three months.
Three refund methods:
Pro rata: the exact unused share, figured by the day. The California Standard Form Fire Insurance Policy uses pro rata when the insurer cancels.
Short rate: a refund a little smaller than pro rata. Under the standard form, when the insured cancels, the refund is the paid premium above the customary short rate for the expired time.
Flat: the policy is canceled as of its start date and no premium is charged.
California Section 481(a)(1): unless the contract says otherwise, the insured gets back the whole premium if the insurer was never exposed to any risk of loss. Section 481(c): a policy that refunds premium other than pro rata must disclose that in writing.