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short-rate cancellation

Short-rate cancellation refers to a type of insurance policy cancellation that serves as a disincentive for the named insured to cancel the policy before its normal expiration date.

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The only time short-rate cancellation would occur would be when the insured initiates the cancellation prior to the expiration date. With short-rate cancellation, the insurer is entitled to retain a greater percentage of unearned premium than would otherwise apply with pro rata cancellation. The method in which the short-rate cancellation penalty may apply varies with the insurance policy in question. For example, a short-rate table may be included as a part of the policy; or the short-rate penalty may be calculated by multiplying the pro rata cancellation factor by a certain percentage increase—for example, 10 percent.

Related Terms

Cancellation is the termination of an insurance policy or bond, before its expiration, by either...

Flat cancellation is the cancellation of an insurance policy or bond as of its effective date, and...

Pro rata cancellation refers to the cancellation of an insurance policy or bond with the return of...