Business Insurance Cancellation Refund Estimator

When you cancel a commercial policy mid-term, the insurer keeps the premium it has earned and refunds the rest. How much it has earned depends on the policy wording, so read the cancellation condition and any minimum retained premium clause first.

Three common methods. Pro rata: the insurer keeps the share of the year that has passed, so after 4 months it keeps 4/12 = 33.33%. Short rate: the insurer keeps more than pro rata, using a table or a penalty, because you chose to cancel early. Minimum retained premium: the insurer keeps at least a stated percentage, such as 25% in the policy, however early you cancel. When the insurer cancels, refunds are normally pro rata.

How it works. Premium kept = premium x percentage kept + flat fee. Refund = premium - premium kept - deductions such as an unpaid premium finance balance.

Worked example (illustrative). A $4,200 policy is cancelled after 4 months on a pro rata basis with a $50 policy fee that is not refundable. The insurer keeps $4,200 x 33.33% + $50, about $1,450, and the refund is about $2,750. If the wording instead uses a short-rate penalty of 10% of the unearned premium, the kept share rises to about 33.33% + 10% x 66.67%, roughly 40%, and the refund falls to about $2,470.

Limits. Auditable policies may also be adjusted for actual revenue or payroll up to the cancellation date. Taxes on the premium are usually refunded in proportion. Cancelling before replacement cover starts leaves a gap that can never be insured after the fact.