Pro-Rata Cancellation

A method of calculating the return premium when a policy is canceled before its expiration date, under which the insured receives a refund proportional to the unexpired portion of the policy period with no penalty. For example, if a policy is canceled with exactly half the term remaining, the insured receives a 50 percent refund of the annual premium. Pro-rata cancellation typically applies when the carrier initiates the cancellation and is more favorable to the insured than short-rate cancellation.