Which statement best describes the legal stance on premium refunds in New Jersey?

Which statement best describes the legal stance on premium refunds in New Jersey?

• A. It is permissible to return a portion of the premium
• B. It is mandatory to refund any unearned premium
• C. It is required to retain all premiums regardless of policy cancellations
• D. It is prohibited to return a portion of the premium

Answer: (D)

Premium refunds revolve around earned versus unearned premium. When a policy ends before its term, the insurer has earned the portion of the premium for the time coverage was in force, and the remaining amount is unearned. In New Jersey, that unearned premium must be refunded to the insured. This ensures the insured isn’t charged for coverage that never occurred. The refund is the unearned portion (often calculated on a pro rata basis or per the policy terms), rather than retaining all premiums or refusing any refund.

Premium refunds revolve around earned versus unearned premium. When a policy ends before its term, the insurer has earned the portion of the premium for the time coverage was in force, and the remaining amount is unearned. In New Jersey, that unearned premium must be refunded to the insured. This ensures the insured isn’t charged for coverage that never occurred. The refund is the unearned portion (often calculated on a pro rata basis or per the policy terms), rather than retaining all premiums or refusing any refund.