The maximum liability for the return of unearned premium is capped at which amount?

The maximum liability for the return of unearned premium is capped at $10,000. This limit is put in place to protect insurers from potentially unlimited financial obligations while ensuring that policyholders are treated fairly when it comes to the refund of premiums for coverage periods they did not utilize.

In insurance policies, an unearned premium refers to the portion of the premium that covers the remaining term of the policy after it has been canceled. If a policyholder cancels their policy, they may be entitled to a refund of the portion of the premium that corresponds to the unused coverage period. However, the insurer's liability for such refunds is capped to provide them with financial limits, allowing for a manageable risk in issuing policies.

The significance of the $10,000 limit is that it strikes a balance between the insurer's obligation to return unearned premium and the financial stability of the insurer. This cap is particularly important in the context of maintaining the insurer's solvency and ensuring they can continue to meet their obligations to all policyholders. Other amounts presented in different options represent lesser or greater caps that do not align with the statutory framework applicable in Tennessee.