How to calculate prorated insurance premium
For a simple endorsement, multiply the full-term premium difference by remaining days divided by the premium basis days. For a pro rata cancellation, multiply the original full-term premium by that same remaining fraction. These are time-allocation estimates; a carrier may apply a different transaction calculation.
- Endorsement
- (New full-term premium − old full-term premium) × remaining days ÷ basis days.
- Pro rata cancellation
- Original full-term premium × remaining days ÷ basis days.
- Short-rate cancellation
- Uses the carrier-provided earned percentage; there is no universal short-rate penalty.
- Rewrite
- Compares the old policy’s estimated return with the replacement policy’s full premium.
Worked example: adding coverage with 100 days remaining
Assume a 365-day policy costs $1,200, and the revised full-term premium is $1,500. With 100 days remaining, the difference is $300 × 100 ÷ 365 = $82.19 additional premium. A $1,200 policy canceled pro rata with 100 days remaining has an estimated unearned amount of $328.77 before carrier adjustments.
Enter comparable full-term premiums—not the amount of a monthly installment. The calculator uses the start date through, but not including, the expiration date. Leap-year terms can contain 366 days. Select the 365- or 360-day basis only when that matches the calculation you need.
Why the refund can differ from this calculation
Unearned premium is not necessarily the cash refund. The carrier also reconciles payments already made, outstanding balances, fees, minimum earned premiums and any applicable cancellation terms.
Use the date when the carrier makes the change effective. A request sent today does not by itself cancel coverage today. Compare the issued endorsement or cancellation statement with the estimate and ask about unexplained differences.