Calculate Insurance Policy Cancellation Refunds in North Carolina
Standard Short Rate penalty is often 10% of unearned premium.
Days Policy in Force:0
Earned Premium (Pro-Rata):$0.00
Unearned Premium (Gross Refund):$0.00
Short Rate Penalty:$0.00
Net Refund Amount:$0.00
Understanding North Carolina Short Rate Cancellations
When canceling an insurance policy in North Carolina before its expiration date, the amount of money returned to the policyholder depends on who initiates the cancellation and the terms set forth by the North Carolina Rate Bureau (NCRB) or the specific insurance carrier.
Key Difference: "Pro-Rata" cancellation returns 100% of the unused premium. "Short Rate" cancellation applies a penalty to cover administrative costs and early termination.
When is Short Rate Applied?
In North Carolina, the "Short Rate" method is typically applied when the insured (policyholder) requests the cancellation of the policy. If the insurance company cancels the policy (for reasons other than non-payment), they are usually required to refund the premium on a Pro-Rata basis.
How is the Short Rate Calculated?
While specific carriers may have detailed tables outlining exact factors for every day of the policy term, the standard "Rule of Thumb" calculation for Short Rate cancellations is:
Calculate Pro-Rata Unearned Premium: This is the portion of the premium covering the days remaining in the policy term.
Apply Penalty: A penalty percentage (commonly 10%) is deducted from the Pro-Rata unearned premium.
Net Refund: The result is approximately 90% of what the pro-rata refund would have been.
Example Calculation
Imagine you paid a $1,200 annual premium for auto insurance. You decide to cancel the policy exactly halfway through the term (after 6 months or roughly 182 days).
Earned Premium: $600 (The insurance company keeps this for coverage provided).
Unearned Premium (Pro-Rata): $600 (This is the unused portion).
Short Rate Penalty (10%): $60 (10% of the $600 unearned portion).
Total Refund: $540 ($600 – $60).
North Carolina Specifics
For North Carolina Worker's Compensation and certain liability policies, the "Short Rate" table can be more aggressive in the early days of a policy. However, for most personal lines (Auto and Home), the 90% return of unearned premium is a widely accepted estimation method unless specific policy language dictates a statutory table.
function calculateShortRate() {
var premiumInput = document.getElementById('annualPremium').value;
var startInput = document.getElementById('policyStartDate').value;
var cancelInput = document.getElementById('cancelDate').value;
var penaltyInput = document.getElementById('penaltyPercent').value;
// Validation
if (!premiumInput || !startInput || !cancelInput) {
alert("Please fill in all fields.");
return;
}
var premium = parseFloat(premiumInput);
var startDate = new Date(startInput);
var cancelDate = new Date(cancelInput);
var penaltyPercent = parseFloat(penaltyInput);
if (isNaN(premium) || isNaN(penaltyPercent)) {
alert("Please enter valid numbers for premium and penalty.");
return;
}
// Set times to noon to avoid daylight saving issues affecting day difference
startDate.setHours(12, 0, 0, 0);
cancelDate.setHours(12, 0, 0, 0);
if (cancelDate totalPolicyDays) {
// If cancellation is after policy end, it's just fully earned (though logically invalid for cancellation)
effectiveDays = totalPolicyDays;
}
// Calculate Pro-Rata Factors
var earnedFactor = effectiveDays / totalPolicyDays;
if (earnedFactor > 1) earnedFactor = 1;
var earnedPremium = premium * earnedFactor;
var unearnedPremium = premium – earnedPremium;
// Apply Short Rate Penalty
// Logic: Penalty is applied to the Unearned Portion (the refund)
// Standard Short Rate refund = 90% of Pro-Rata Refund
var penaltyFactor = penaltyPercent / 100;
var penaltyAmount = unearnedPremium * penaltyFactor;
var shortRateRefund = unearnedPremium – penaltyAmount;
// Rounding to 2 decimals
earnedPremium = Math.round(earnedPremium * 100) / 100;
unearnedPremium = Math.round(unearnedPremium * 100) / 100;
penaltyAmount = Math.round(penaltyAmount * 100) / 100;
shortRateRefund = Math.round(shortRateRefund * 100) / 100;
// Prevent negative refund
if (shortRateRefund < 0) shortRateRefund = 0;
// Update UI
document.getElementById('resDays').innerText = daysInForce;
document.getElementById('resEarned').innerText = "$" + earnedPremium.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resUnearned').innerText = "$" + unearnedPremium.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resPenalty').innerText = "-$" + penaltyAmount.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resNetRefund').innerText = "$" + shortRateRefund.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resultSection').style.display = 'block';
}