Glossary · Insurance agency commissions
Pro rata cancellation
A pro rata cancellation refunds the insured the exact share of premium for the days of coverage remaining, with no penalty.
What it means
Pro rata is the most common basis for refunds when the carrier cancels a policy, and many policies use it for other cancellations too. The policy wording and state rules decide which basis applies. The calculation: annual premium times unused days, divided by days in the term.
Small differences are normal. A carrier might count days slightly differently, or exclude a non-refundable fee, so a few cents or dollars off your own number isn’t necessarily an error.
How it shows on a commission statement
A pro rata cancellation shows as a cancellation line with negative premium equal to the unearned share, and a negative commission at the policy’s rate. If the cancellation is backdated, the line can appear on a later statement than you’d expect.
Example
- Annual premium, 365-day term
- $1,460.00
- Cancelled after 146 days; unused
- 219 days
- Return premium (1,460 × 219 ÷ 365)
- −$876.00
- Commission rate
- 15%
- Expected chargeback
- −$131.40
Common mistakes to check
- A chargeback on the full premium rather than the returned share.
- Expecting a pro rata refund where the policy allows short rate, or the reverse.
- Flagging a small rounding difference as an error.
- Not noticing a later reinstatement that should reverse the cancellation.