Short-Rate Cancellation

A method of calculating the return premium when a policy is canceled before its expiration date at the insured's request. Under short-rate cancellation, the carrier retains a greater portion of the unearned premium than it would under a pro-rata calculation, imposing a penalty for early termination. The retained amount covers the carrier's fixed costs that were spread over the full policy period. Short-rate tables are specified in the policy or established by state regulation.