Which term describes the termination of an insurance policy by mutual agreement?

The correct term that describes the termination of an insurance policy by mutual agreement is cancellation. In the context of insurance, cancellation refers to a situation where both the insurer and the policyholder agree to end the contract before the policy reaches its natural expiration date. This can occur for various reasons, such as a change in the policyholder's circumstances or a mutual decision based on specific conditions outlined in the policy.

Both parties typically must consent to the cancellation terms, which may involve the return of any unearned premiums paid by the policyholder. This mutual agreement differentiates cancellation from other terminologies that imply unilateral action.

Surrender, while it can involve mutual agreement, typically refers to a scenario where the insured voluntarily gives up the policy for a cash value rather than just terminating it. The terms rescission and expiry carry different implications; rescission is often associated with nullifying a contract from the beginning due to misrepresentation or material non-disclosure, whereas expiry simply means the insurance policy has reached its end date without any further action. Therefore, cancellation is the term that accurately denotes a mutual agreement to terminate the policy.