Pro Rata Calculation Formula Insurance

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Pro Rata Insurance Premium Calculator

Calculation Results

Total Days in Policy Term: 0
Days Used (Earned): 0
Days Remaining (Unearned): 0
Daily Premium Rate: $0.00
Earned Premium (Insurer Keeps): $0.00
Estimated Pro Rata Refund: $0.00

What is the Pro Rata Calculation in Insurance?

In the insurance industry, "pro rata" (Latin for "in proportion") refers to the method of calculating premiums or refunds based on the exact number of days a policy was in effect. Unlike "short rate" cancellation, which includes a penalty fee for ending a policy early, a pro rata calculation is a fair-share method where the insurer only keeps the portion of the premium for the days they actually provided coverage.

The Pro Rata Calculation Formula

The basic mathematical formula used for pro rata insurance adjustments is:

Refund = (Total Premium / Total Days in Policy) × Number of Days Remaining

To find the Earned Premium (the amount the insurance company keeps):

Earned Premium = (Total Premium / Total Days in Policy) × Number of Days Used

Step-by-Step Calculation Example

Imagine you purchased an annual car insurance policy for $1,200 that runs from January 1st to December 31st (365 days). You decide to cancel the policy on April 10th.

  • Total Days: 365
  • Days Used (Jan 1 to April 10): 100 days
  • Daily Rate: $1,200 / 365 = $3.2876 per day
  • Earned Premium: 100 days × $3.2876 = $328.76
  • Pro Rata Refund: $1,200 – $328.76 = $871.24

Why Do You Need This Calculator?

Pro rata calculations are essential when you switch insurance providers, sell a vehicle, or close a business mid-term. This calculator helps you verify that your insurance company is returning the correct amount of unearned premium. Note that while most commercial and personal lines use pro rata for insurer-initiated cancellations, some personal policies may apply a "short rate" if the policyholder cancels, which would result in a slightly lower refund than shown here.

function calculateInsuranceProRata() { var premium = parseFloat(document.getElementById('totalPremium').value); var start = new Date(document.getElementById('policyStart').value); var end = new Date(document.getElementById('policyEnd').value); var cancel = new Date(document.getElementById('cancelDate').value); if (isNaN(premium) || isNaN(start.getTime()) || isNaN(end.getTime()) || isNaN(cancel.getTime())) { alert("Please enter a valid premium amount and all three dates."); return; } if (end <= start) { alert("Policy End Date must be after the Start Date."); return; } if (cancel end) { alert("Cancellation Date must fall within the policy period."); return; } var msPerDay = 1000 * 60 * 60 * 24; // Calculate total days in policy var totalDays = Math.round((end – start) / msPerDay); // Calculate days used var usedDays = Math.round((cancel – start) / msPerDay); // Calculate days remaining var remainingDays = totalDays – usedDays; // Daily rate var dailyRate = premium / totalDays; // Earned premium var earnedPremium = dailyRate * usedDays; // Refund amount var refund = dailyRate * remainingDays; // Display results document.getElementById('resTotalDays').innerText = totalDays; document.getElementById('resUsedDays').innerText = usedDays; document.getElementById('resRemainingDays').innerText = remainingDays; document.getElementById('resDailyRate').innerText = "$" + dailyRate.toFixed(4); document.getElementById('resEarnedPremium').innerText = "$" + earnedPremium.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resRefund').innerText = "$" + refund.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2}); document.getElementById('resultDisplay').style.display = 'block'; }

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