Short-rate cancellation occurs when:

Short-rate cancellation specifically refers to a situation where the insured chooses to cancel their insurance policy before the end of the term. In this case, instead of receiving a prorated return of the premium, which would be the case in a prorated cancellation, the insured receives a lesser amount due to administrative costs and other considerations factored into the short-rate penalty. This penalty exists to compensate the insurer for the lost premium income and potential administrative expenses incurred due to the early cancellation.

The other options presented do not correctly define short-rate cancellation. When the insurer cancels a policy without notice, that would typically be a different process governed by specific state laws and policy terms, not associated with short-rate cancellation. Additionally, when a policy simply expires at the end of its term, there’s no cancellation by the insured; the policy naturally concludes. Lastly, a request for renewal does not pertain to cancellation at all, as it implies the continuation of coverage rather than termination. Thus, the correct understanding of short-rate cancellation is integral to recognizing how premium refunds are calculated when an insured opts to end coverage prematurely.