Three different endings:
Cancellation: the policy is ended before its expiration date, by the insurer or the insured.
Nonrenewal: the insurer declines to continue the policy when it expires.
Lapse: coverage ends because the premium needed to keep it going was not paid. Example: the insurer offers to renew, the insured does not pay, and the policy expires.
When a policy is canceled midterm, unearned premium is returned in one of these ways:
Pro rata: the insured gets back all of the unearned premium.
Short rate: the insured cancels, and the insurer keeps a penalty out of the unearned premium.
Flat cancellation: the policy is canceled on its effective date, so no premium is earned and all of it is returned.
Short-rate example: a $2,000 annual premium, canceled by the insured at the halfway point, leaves $1,000 unearned. With a 10% penalty, the refund is $900 instead of $1,000. Under Ins. Code §481(c)(1), a refund provision other than pro rata, including the actual or maximum fee or penalty, must be disclosed in writing before or with the application and before each renewal to which it applies.
Commercial nonrenewal notice (§678.1(c)): at least 60 days but not more than 120 days before the end of the policy period. If the notice is late, §678.1(d) continues the policy with no change in its terms for 60 days after the notice is given. Personal auto rules are covered in the Personal Auto chapter.