What Is The Difference Between “Short-rate” and “Pro-rate” Policies?


Canceling an insurance policy is certainly something everyone thinks about when applying for one since nothing can last forever. You may have heard the words “Pro-Rate” or “Short-Rate” Cancellation if you’ve ever had an insurance policy canceled. These two phrases allude to the kind of cancellation and refund that will take place.

As a trucking company, you are expected to ensure the safety of your drivers, vehicles, and cargo from the beginning through several policies, which you should read more about before starting your business. Considering this, it is inevitable that you may cancel one of them or the insurance company decides to do so at some point.

Knowing the difference between “Pro-Rate” and “Short-Rate” insurance cancellation plans can help you examine how to handle your contracts to win, so you should know the differences beforehand. Here is what you should know!

What is a “Pro-Rate” Cancellation Policy?

A Pro-Rate policy is the cancellation of an insurance policy or bond with the refund of unearned premium credit equal to the full percentage of the premium for the policy or bond’s remaining term, without penalty for interim cancellation.

Insurers typically cancel policies when there has been a significant change. Because of these developments, your insurer is hesitant to keep you on the coverage. “A major and persistent change to your position that impacts and raises the risk” is described as a material change. The following are some instances of material changes:

  • Putting your car in the hands of a newly licensed driver
  • Changing the function of your vehicle, such as delivering packages or going to work or school when you previously did not, can raise the cost of your insurance premium.
  • Altering your car for performance or cosmetic reasons can also raise the cost of your insurance premium. These are adjustments to your automobile that differ from the manufacturer’s usual standards.

If you have paid your premiums in advance, you may be eligible for a refund. If your policy has five months left, for example, you will be repaid a pro-rated sum for that time. You will be repaid the total cost of the premium you did not use if you cancel pro-rated.

What is a “Short-Rate” Cancellation Policy?

Short-Rate Cancellation is a sort of insurance policy cancellation that acts as a deterrent to the named insured canceling the policy before it expires. The only time a short-rate cancellation would occur is if the insured cancels before the policy’s expiration date.

With short-rate cancellation, the insurer is allowed to keep a higher percentage of the unearned premium (UEP) than with pro-rata cancellation. According to the insurance contract, the mechanism through which the short-rate cancellation penalty may be applied differs.

A short-rate table, for example, might be provided in the policy, or the short-rate penalty could be determined by increasing the pro-rate cancellation factor by a specified percentage increase, such as 10%.


To summarize the explanations above, pro-rate cancellations are imposed when an insurer cancels a policy. This generally occurs when the insurer no longer feels comfortable continuing on the policy due to a significant change in circumstances. On the other hand, short rate cancellations are imposed when the insured decides to cancel the policy in the middle of its term.

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Hi, I'm James George, the founder of Mind My Business NYC and author of this blog. I am an entrepreneur and internet marketer. My wish is that this website helps you to grow your business and achieve your goals.


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