Estimate your insurance refund after penalties for early cancellation.
Usually 10% of unearned premium.
Days Policy Active:0 days
Standard Pro-Rata Refund:$0.00
Short Rate Penalty:-$0.00
Net Refund to You:$0.00
Total Premium Retained by Insurer:$0.00
Understanding Short Rate Cancellation Refunds
When you purchase an insurance policy, you typically agree to a one-year contract. However, life changes—you might sell your car, move to a new home, or find a better rate with a different provider. When you cancel an insurance policy before the expiration date, the refund method used by the insurer determines how much money you get back. The two most common methods are Pro-Rata and Short Rate.
What is Short Rate Cancellation?
Short rate cancellation is a method of calculating the unearned premium refund in which the insurance company retains a penalty percentage of the unearned premium. This penalty covers the administrative costs associated with issuing and cancelling the policy early.
Unlike a pro-rata cancellation, where you are refunded exactly for the days you did not use, a short rate cancellation results in a smaller refund for the policyholder. This is standard practice for many commercial liability policies and some personal lines depending on state regulations and the specific carrier.
Pro-Rata vs. Short Rate
Pro-Rata: You get a 100% refund for the unused days. (e.g., Cancel halfway through, get 50% back).
Short Rate: You get a refund for the unused days minus a penalty (usually around 10% of the unearned portion).
How is the Short Rate Penalty Calculated?
While some insurers use complex actuarial tables (a "short rate table") that assign a specific percentage of premium earned based on the exact number of days the policy was in force, a common simplified approximation is the 90% Rule.
In this simplified calculation:
Calculate Daily Rate: Divide the annual premium by 365.
Calculate Unearned Premium: Multiply the daily rate by the number of days remaining on the policy.
Apply Penalty: Multiply the unearned premium by the penalty rate (typically 10%).
Determine Refund: Subtract the penalty from the unearned premium to get your final refund amount.
Example Calculation
Let's say you bought a policy for $1,200 starting on January 1st. You cancel it on June 30th (approximately 181 days active).
In this scenario, cancelling early cost you roughly $60 compared to a pro-rata cancellation.
When Should You Use This Calculator?
Use this tool if you are considering cancelling a policy mid-term and want to know the financial impact. It is particularly useful for:
Business owners cancelling General Liability or Workers Comp policies.
Drivers switching auto insurance carriers mid-term.
Homeowners selling a property before the policy period ends.
Note: Always check your specific policy documents to see if a Short Rate penalty applies. Some states prohibit short rate penalties for certain types of insurance.
function calculateShortRate() {
// 1. Get Input Values
var premiumInput = document.getElementById('policyPremium');
var penaltyInput = document.getElementById('penaltyPercentage');
var startDateInput = document.getElementById('startDate');
var cancelDateInput = document.getElementById('cancelDate');
var premium = parseFloat(premiumInput.value);
var penaltyRate = parseFloat(penaltyInput.value);
var startStr = startDateInput.value;
var cancelStr = cancelDateInput.value;
// 2. Validation
if (isNaN(premium) || premium <= 0) {
alert("Please enter a valid Annual Premium amount.");
return;
}
if (isNaN(penaltyRate) || penaltyRate < 0) {
alert("Please enter a valid Penalty Percentage (0 or higher).");
return;
}
if (!startStr || !cancelStr) {
alert("Please select both Start and Cancellation dates.");
return;
}
var startDate = new Date(startStr);
var cancelDate = new Date(cancelStr);
// Reset hours to ensure clean day calculation
startDate.setHours(0,0,0,0);
cancelDate.setHours(0,0,0,0);
if (cancelDate totalPolicyDays) {
alert("This calculator assumes a standard 1-year (365 day) policy. Your dates exceed this range.");
return;
}
var daysUnused = totalPolicyDays – daysActive;
if (daysUnused < 0) daysUnused = 0;
// 4. Financial Calculations
// Calculate Pro-Rata Unearned Premium (The amount for the days NOT used)
var dailyRate = premium / totalPolicyDays;
var proRataUnearned = dailyRate * daysUnused;
// Calculate Penalty (Applied to the unearned portion usually)
var penaltyAmount = proRataUnearned * (penaltyRate / 100);
// Calculate Final Refund
var netRefund = proRataUnearned – penaltyAmount;
if (netRefund < 0) netRefund = 0;
// Calculate Earned Premium (What the insurer keeps)
// This is Total Premium – Refund
var earnedPremium = premium – netRefund;
// 5. Display Results
document.getElementById('daysActiveDisplay').innerHTML = daysActive + " days";
document.getElementById('proRataDisplay').innerHTML = "$" + proRataUnearned.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('penaltyDisplay').innerHTML = "-$" + penaltyAmount.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('netRefundDisplay').innerHTML = "$" + netRefund.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('retainedDisplay').innerHTML = "$" + earnedPremium.toLocaleString('en-US', {minimumFractionDigits: 2, maximumFractionDigits: 2});
// Show results section
document.getElementById('results').style.display = "block";
}
function resetCalculator() {
document.getElementById('policyPremium').value = "";
document.getElementById('penaltyPercentage').value = "10";
document.getElementById('startDate').value = "";
document.getElementById('cancelDate').value = "";
document.getElementById('results').style.display = "none";
}