function calculateExtension() {
// Clear previous errors
document.getElementById('premiumError').style.display = 'none';
document.getElementById('daysError').style.display = 'none';
document.getElementById('calculationResult').style.display = 'none';
// Get Input Values
var premiumInput = document.getElementById('currentAnnualPremium').value;
var daysInput = document.getElementById('extensionDays').value;
// Validation
var premium = parseFloat(premiumInput);
var days = parseInt(daysInput);
var isValid = true;
if (isNaN(premium) || premium <= 0) {
document.getElementById('premiumError').style.display = 'block';
isValid = false;
}
if (isNaN(days) || days <= 0) {
document.getElementById('daysError').style.display = 'block';
isValid = false;
}
if (!isValid) {
return;
}
// Calculation Logic
// Standard insurance year is typically calculated on 365 days for pro-rata
var daysInYear = 365;
// Calculate Daily Rate (Pro Rata Factor)
var dailyRate = premium / daysInYear;
// Calculate Total Extension Premium
var extensionCost = dailyRate * days;
// Update UI
document.getElementById('displayDailyRate').innerText = '$' + dailyRate.toFixed(2);
document.getElementById('displayExtensionDays').innerText = days + ' Days';
document.getElementById('displayTotalExtensionCost').innerText = '$' + extensionCost.toFixed(2);
// Show Results
document.getElementById('calculationResult').style.display = 'block';
}
Understanding Pro Rata Extension Premiums
In the insurance industry, policy terms usually last for a specific period, such as six months or one year. However, situations often arise where a policyholder needs coverage for a short period beyond the expiration date without committing to a full renewal. This is where a Pro Rata Extension applies.
This calculator is designed to help insurance agents, brokers, and policyholders estimate the cost of extending an existing insurance policy for a specific number of days based on the current annual premium.
When is a Policy Extension Needed?
Extensions are commonly requested in both personal and commercial lines of insurance for scenarios such as:
Real Estate Closings: A homeowner may need to extend home insurance for a few weeks if the sale of their property is delayed.
Vehicle Sales: A driver might need auto insurance for a few extra days while waiting to sell a car or transfer a title.
Project Delays: Construction policies (Builder's Risk) may need to be extended if a project runs past the anticipated completion date.
Business Transitions: Companies merging or closing may need liability coverage for a specific interim period.
How is the Premium Calculated?
Most policy extensions are calculated on a "Pro Rata" basis. This means the cost is strictly proportional to the time the coverage is active. Unlike "Short Rate" calculations, which include a penalty for early cancellation, Pro Rata is considered the fairest method for extensions.
The Formula:
Daily Rate = Annual Premium ÷ 365
Extension Premium = Daily Rate × Number of Days
For example, if an annual policy costs $1,000, the daily rate is approximately $2.74. If you need to extend the policy for 10 days, the additional premium charged would be roughly $27.40.
Important Considerations
While the mathematical calculation is straightforward, there are a few industry nuances to keep in mind:
Minimum Earned Premiums: Some carriers have a minimum premium amount (e.g., $50 or $100) required to process any transaction, regardless of the calculated pro rata amount.
Fees and Taxes: The calculated extension premium typically covers the base rate. Depending on your jurisdiction, additional policy fees or surplus lines taxes may apply to the extension endorsement.
Underwriting Approval: An extension is not automatic. The insurance carrier usually must approve the request to extend coverage beyond the original expiration date.
Use this calculator to get a baseline estimate of your extension costs to facilitate better financial planning during transitional periods.