Pro rata and short rate cancellation calculator

How the refund is worked out

An annual policy is paid for up front, but the carrier earns the premium day by day as the cover runs. When the policy cancels mid-term, the part already earned stays with the carrier and the unearned premium goes back to the insured as return premium. The calculator works that out for one cancellation date under three methods.

days in force = cancellation date − effective date (+1 if you count the cancellation day), at most the term days
pro rata earned = premium × days in force ÷ term days
short rate (penalty) earned = pro rata earned + penalty % × pro rata unearned
short rate (table) earned = premium × table %
earned premium = the larger of the above and the minimum earned premium (not applied to a flat cancellation)
return premium = premium − earned premium

Pro rata

A pro rata cancellation returns premium in exact proportion to the time left. In the starting example, a $1,200 annual policy runs from January 1, 2026 to January 1, 2027, 365 days, and cancels on May 1 after 120 days. The carrier keeps $394.52 and returns $805.48. At a 15% commission rate, $120.82 of commission goes back with it.

Short rate

Under a short-rate cancellation the carrier keeps more than the pro rata share, most often when the insured asks to cancel. A 2025 rule proposal from the Texas Department of Insurance describes it plainly: a short rate provision “allows an insurer to retain a portion of unearned premium, which means that an insured’s refund is less than a pro rata amount of the policy premium” (TDI, proposed amendments to 28 TAC §5.7015). That proposal would bar short rate on Texas personal auto and residential property policies; we cite it for the definition, not as a rule for your state. Short rates come in two forms, and the calculator takes either:

• A penalty on the unearned premium. With a 10% penalty in the example, the carrier keeps $80.55 of the $805.48 pro rata refund: earned premium $475.07, return premium $724.93.
• A table percentage. Short-rate tables give the share of premium earned after a given number of days. If the table says 40% is earned, the carrier keeps $480 and returns $720.

We don’t publish a short-rate table and haven’t built in any state’s or carrier’s rules. Tables come from the policy form, the carrier’s filings or a rating bureau, and some states limit or prohibit short rate on certain personal lines policies. Enter the figure from your own policy or notice.

Minimum earned premium

Some policies, often in surplus lines, carry a minimum earned premium: the carrier keeps at least that amount whenever the policy cancels. With a $500 minimum and the 10% penalty above, the calculated $475.07 rises to $500 and the return premium falls to $700. The same Texas proposal gives a pro rata example with a $25 minimum retained premium on a $365 annual policy: cancelled on day 50 the refund is $315, and on day 10 it is $340, because the minimum is more than ten days of premium. To reproduce its day count, tick “count the cancellation day”.

Edge cases

• Same-day cancellation. A cancellation on the effective date is a flat cancellation: nothing has been earned and the full premium goes back. The calculator doesn’t apply a minimum earned premium to it and says so; some policies apply it anyway.
• Leap years. An annual term containing February 29 has 366 days. On actual term days, each day is worth 1/366 of the premium; on a 365-day year, each is worth 1/365, so the last day of a leap-year term has nothing left to earn.
• After expiration. A cancellation date on or after expiration means the whole premium is earned and nothing is returned.
• Installments and fees. If the insured pays monthly, the refund is the unearned premium minus anything still unpaid. Policy fees and taxes may or may not be refundable. Enter only the premium.

Commission on the refund

The last line is the return premium times the commission rate you enter: the commission a carrier would normally take back. That is a quick view only. To check an actual chargeback line on a statement, including a difference against what the carrier deducted, use the commission chargeback calculator, and see commission chargebacks explained for the other causes of negative lines.

Illustrative only. General information, not legal, accounting or tax advice. The policy, the carrier’s filed rules and your state’s law govern the refund.

Questions

How do you calculate a pro rata refund on an insurance policy?

Divide the days the policy was in force by the days in the term, multiply by the premium to get the earned premium, and subtract it from the premium. A $1,200 annual policy cancelled after 120 of 365 days has earned $394.52 and returns $805.48.

What is unearned premium?

The part of a prepaid premium that covers the time left after the cancellation date. The carrier hasn’t provided that cover yet, so on cancellation it is returned to the insured, less any short-rate penalty or minimum earned premium the policy allows.

How is a short-rate cancellation calculated?

Either as a penalty, a percentage of the pro rata unearned premium that the carrier keeps, or from a short-rate table that gives the percentage of premium earned after a number of days. The table or penalty comes from the policy or the carrier’s filings; this calculator doesn’t supply one.

Does the cancellation day count as a day in force?

It depends on the policy and the carrier. By default the calculator counts from the effective date up to, but not including, the cancellation date. Tick the box to count the cancellation day too, as in the Texas Department of Insurance example cited on this page.

Should I use 365 days or the actual term days?

Use what your policy or cancellation notice uses. The two only differ when an annual term contains February 29: actual term days divides by 366, the 365-day year by 365.

What happens with a minimum earned premium?

The earned premium can’t fall below it. If pro rata or short rate gives less, the carrier keeps the minimum and the refund shrinks by the difference, which the calculator shows on its own line.

Can I put this calculator on my website?

Yes. The page has an embed code for an iframe that keeps a visible Powered by Lapidar link. It runs in the visitor’s browser and sends nothing anywhere.

Does this calculator store or send my numbers?

No. The calculation runs in your browser. Nothing is uploaded, saved or tracked.