Glossary · Insurance agency commissions
Short-rate cancellation
A short-rate cancellation refunds less than the unused share of premium because the carrier keeps a penalty, and it usually applies when the insured asks to cancel mid-term.
What it means
Whether short rate is allowed, and how it is calculated, depends on the policy form and on state rules. Some policies refer to a short-rate table; others use a formula, such as a percentage of the pro rata refund. There is no single universal table, so treat any figure you see elsewhere, including the one below, as an illustration.
Short rate matters for commission because the chargeback should follow the premium actually returned, not the pro rata amount.
How it shows on a commission statement
It looks like any cancellation: a negative premium line and a negative commission line. The difference is the size of the return premium. If the statement shows a short-rate return but a chargeback calculated on the pro rata amount, the carrier has taken back too much.
Example
- Annual premium; cancelled with 6 months left
- $1,200.00
- Pro rata refund would be
- $600.00
- Short-rate refund (carrier keeps 10% of it)
- −$540.00
- Expected chargeback at 15%
- −$81.00
Common mistakes to check
- A chargeback based on the pro rata refund when a short-rate refund was paid.
- Assuming every carrier uses the same table or percentage.
- Assuming short rate applies to a cancellation the carrier initiated.