function calculateRefund() {
// Clear previous errors and results
var errorDiv = document.getElementById('errorDisplay');
var resultsDiv = document.getElementById('resultsSection');
var penaltySection = document.getElementById('penaltySection');
errorDiv.style.display = 'none';
errorDiv.innerHTML = ";
resultsDiv.style.display = 'none';
// Get Inputs
var premium = parseFloat(document.getElementById('totalPremium').value);
var startStr = document.getElementById('startDate').value;
var endStr = document.getElementById('endDate').value;
var cancelStr = document.getElementById('cancelDate').value;
var penalty = parseFloat(document.getElementById('shortRatePenalty').value);
// Validation Logic
if (isNaN(premium) || premium <= 0) {
errorDiv.innerHTML = "Please enter a valid positive premium amount.";
errorDiv.style.display = 'block';
return;
}
if (!startStr || !endStr || !cancelStr) {
errorDiv.innerHTML = "Please select Start, End, and Cancellation dates.";
errorDiv.style.display = 'block';
return;
}
var startDate = new Date(startStr);
var endDate = new Date(endStr);
var cancelDate = new Date(cancelStr);
// Normalize times to midnight to ensure accurate day calculation
startDate.setHours(0,0,0,0);
endDate.setHours(0,0,0,0);
cancelDate.setHours(0,0,0,0);
if (endDate <= startDate) {
errorDiv.innerHTML = "End Date must be after Start Date.";
errorDiv.style.display = 'block';
return;
}
if (cancelDate endDate) {
errorDiv.innerHTML = "Cancellation Date must be between Start and End dates.";
errorDiv.style.display = 'block';
return;
}
// Calculate Days
var oneDay = 24 * 60 * 60 * 1000;
var totalDays = Math.round(Math.abs((endDate – startDate) / oneDay));
var daysUsed = Math.round(Math.abs((cancelDate – startDate) / oneDay));
// Ensure total days isn't 0 to avoid division by zero (unlikely due to validation but good practice)
if (totalDays === 0) totalDays = 1;
var daysUnearned = totalDays – daysUsed;
// Calculate Financials (Pro Rata)
var unearnedFactor = daysUnearned / totalDays;
var proRataRefund = premium * unearnedFactor;
var earnedPremium = premium – proRataRefund;
// Display Base Results
document.getElementById('resTotalDays').innerText = totalDays;
document.getElementById('resDaysEarned').innerText = daysUsed;
document.getElementById('resDaysUnearned').innerText = daysUnearned;
document.getElementById('resEarnedPremium').innerText = "$" + earnedPremium.toFixed(2);
document.getElementById('resProRataRefund').innerText = "$" + proRataRefund.toFixed(2);
// Calculate Short Rate if applicable
if (!isNaN(penalty) && penalty > 0) {
var penaltyAmount = proRataRefund * (penalty / 100);
var shortRateRefund = proRataRefund – penaltyAmount;
document.getElementById('penaltyPercentDisplay').innerText = penalty;
document.getElementById('resPenaltyAmount').innerText = "-$" + penaltyAmount.toFixed(2);
document.getElementById('resShortRateRefund').innerText = "$" + shortRateRefund.toFixed(2);
penaltySection.style.display = 'block';
} else {
penaltySection.style.display = 'none';
}
// Show Results
resultsDiv.style.display = 'block';
}
Understanding Pro Rata vs. Short Rate Cancellations
When an insurance policy or prepaid service contract is cancelled before its expiration date, the refund amount depends on the method specified in the contract: Pro Rata or Short Rate. Understanding the difference is crucial for calculating the return premium accurately.
What is Pro Rata Cancellation?
"Pro Rata" essentially means "in proportion." In a pro rata cancellation, the insurance company or service provider retains only the portion of the premium that corresponds to the time the coverage was active (earned premium). The entire remaining balance (unearned premium) is refunded to the customer.
Formula:(Unearned Days / Total Days in Term) × Total Premium = Refund
This method is typically used when the insurance company initiates the cancellation or under specific policy conditions favored by regulators.
What is Short Rate Cancellation?
A "Short Rate" cancellation occurs typically when the policyholder (the customer) cancels the policy before the term ends. Because the insurer incurs administrative costs to set up the policy, they apply a penalty to the unearned premium refund.
The penalty is usually a percentage (e.g., 10%) deducted from the Pro Rata refund amount. This means the customer receives less money back than the exact proportionate share of the remaining time.
Formula:Pro Rata Refund × (1 – Penalty %) = Short Rate Refund
How to Use This Calculator
Total Policy Premium: Enter the full amount paid for the entire policy term (e.g., $1,000).
Dates: Input the official start date, the scheduled expiration date, and the effective date of cancellation.
Short Rate Penalty: If your contract specifies a short rate cancellation (often found in the cancellation provisions clause), enter the penalty percentage. If unknown, leave it as 0 to see the full Pro Rata amount.
Example Scenario
Imagine you paid $1,200 for a one-year policy starting on January 1st. You cancel on July 1st (exactly halfway through the year).
Pro Rata: You used 50% of the time, so you get 50% of the money back ($600).
Short Rate (10% Penalty): The insurer calculates the $600 refund, then deducts 10% ($60) as a penalty. You receive $540.