Understanding Pro-Rata vs. Short-Rate Insurance Premiums: Get a Refund

If you cancel your insurance between premium payments, you're entitled to money back. For example, if you pay for six months of auto coverage, then cancel three months later, your insurer will refund some or all of your premium. The same applies if it's your insurer who cancels the policy. With pro-rata cancellation, you get all the unspent premiums back. Short-rate cancellation gives you a little less.

Get It All Back

Figuring your pro-rata premium refund is simple. If, say, you pay for a year of coverage and cancel after eight months, you get one-third of your premium back. There's no cancellation penalty, so all your insurer has to do is crunch the numbers. If you paid $900 for a year's premium, you would get $300 back.

Partial Premium Refund

Short-rated policies are written to discourage you from canceling early. When you cancel, the company applies a penalty: With a 10 percent penalty, for instance, you'd only get 90 percent of the remaining premium. In the example from Section 1, you'd only get $270 back instead of $300. If your insurance is subject to short-rated premiums, the policy paperwork will say so.