Pro rata and short rate cancellation calculator

When a policy is cancelled pro rata, the insured gets back the premium for exactly the days left in the term. Nothing is kept as a penalty.

Return premium = premium × days remaining ÷ days in the term

A $1,200 annual policy cancelled after 90 of 365 days has 275 days remaining. The return premium is $1,200 × 275 ÷ 365 = $904.11, and the carrier keeps $295.89 as earned premium.

Carriers usually cancel pro rata when they cancel the policy themselves, or when a policy is rewritten or replaced.

Short rate cancellation returns less than pro rata. The carrier keeps a penalty, usually when the insured asks to cancel mid-term. Carriers calculate it in different ways: some use a published short-rate table, and some keep a set percentage of the unearned premium.

This calculator uses the percentage method: short rate return = pro rata return × (1 − penalty %). With a 10% penalty, the $904.11 pro rata return in the example becomes $813.70.

Because carriers differ, treat a short-rate figure as an estimate and check the carrier's own terms.

Some policies, especially commercial and specialty policies, have a minimum earned premium. The carrier keeps at least that share of the premium, however early the policy cancels. If the policy has one, enter it, and the calculator caps the return premium accordingly.

When premium is returned, the commission paid on it usually comes back too. This is the chargeback you see on your next commission statement.

Commission charged back = return premium × your commission rate

In the example, a 15% commission on the $904.11 pro rata return means $135.62 is charged back. Check your agency agreement for how each carrier handles this.

A chargeback that doesn't match the return premium is easy to miss on a long statement. It might use the wrong rate, the wrong cancellation date, or a full-term premium instead of the return.

If you check statements by hand, the step-by-step guide to reconciling commission statements walks through the whole method.

Insurance Commission Reconciliation checks every line of your carrier statements against your book of business, including chargebacks, and flags the ones that don't add up. Your first reconciliation is free, and no card is needed.