Insurance Pro Rata Calculator
Calculate unearned premium refunds and claim distributions accurately.
What is a Pro Rata Insurance Calculation?
In the insurance industry, "pro rata" refers to a method of calculating premiums or refunds based on the exact proportion of time a policy was in force. Unlike "short-rate" cancellations, which apply a penalty for early termination, a pro rata calculation treats every day of coverage equally.
This calculator is essential for policyholders looking to cancel a policy early and for claims adjusters determining how much premium remains "unearned" by the insurance company. If you paid for a full year of coverage but cancel exactly halfway through, a pro rata refund would return exactly 50% of your premium.
The Pro Rata Formula
The calculation follows a straightforward mathematical logic based on time elapsed:
- Total Duration: Difference between Expiration Date and Start Date.
- Unused Duration: Difference between Expiration Date and Cancellation Date.
- Refund Amount: (Total Premium / Total Duration) × Unused Duration.
Practical Example
Scenario: You purchased a professional liability policy for $2,500 for a period of one year (365 days). You decide to close your business 150 days into the policy term.
- Total Premium: $2,500
- Total Days: 365
- Daily Rate: $2,500 / 365 = $6.849 per day
- Days Remaining: 365 – 150 = 215 days
- Pro Rata Refund: $6.849 × 215 = $1,472.54
Key Terms to Know
Earned Premium: The portion of the total premium that the insurance company has "kept" because that period of time has already passed with coverage provided.
Unearned Premium: The portion of the premium that corresponds to the remaining time on the policy. This is typically the amount returned to the policyholder in a pro rata cancellation.
Effective Date: The day and time the insurance coverage officially begins.