Market & Policy · Insurance Term
Short-Rate Cancellation
Definition
Short-rate cancellation is a method of calculating the refund when a policy is canceled early. The insurer keeps more than the time-based share of the premium as a penalty, so your refund is smaller than a straight pro-rata refund.
In Plain English
When a policy ends in cancellation mid-term, there are two common refund methods. Pro rata returns exactly the unused portion. Short rate returns less, to cover the insurer's costs of issuing a policy that didn't run its full term.
Short-rate refunds usually apply when you, the insured, cancel. When the insurer cancels, the refund is usually pro rata. Some policies also carry a minimum earned premium, which can shrink a refund further.
If your policy was financed under a premium finance agreement, the refund goes to the finance company first.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical and simplified: an owner pays a $12,000 annual premium and sells the property after 6 months. A pro-rata refund would be $6,000. Under a short-rate method, the refund might be noticeably less — for example, around $5,400 — depending on the insurer's method.
What to Watch For
- Ask whether your policy uses short-rate or pro-rata cancellation.
- Check for any minimum earned premium before you cancel.
- Time policy changes around a sale to limit penalties.
- Get the refund calculation in writing.
Last updated October 14, 2026 · Primesure editorial team · How We Write