Pro Rata Cancellation

Pro rata cancellation is a method of calculating the refund when an insurance policy is cancelled before the end of its term. The refund equals the unearned premium calculated proportionally — day-by-day — to the days remaining on the policy. There is no penalty beyond what you have already paid for the coverage you received.

How it works: if you paid 1,200 dollars for a 12-month policy and cancel exactly halfway through (6 months in), you would receive back 600 dollars under pro rata. If you cancel after 4 months, you would receive back roughly 800 dollars (8 months remaining out of 12). Some carriers calculate to the exact day; others round to the nearest month.

Pro rata is the standard refund method for customer-initiated cancellations on personal lines in Georgia (homeowners, auto, umbrella, renters). It is also the standard when the carrier initiates the cancellation (for non-payment, for example).

The alternative is short rate cancellation, where the refund is reduced by a penalty (typically 10 percent of the unearned premium) as a fee for early cancellation. Short rate is more common in some commercial lines and historically was more common in personal lines. Most personal lines carriers in Georgia have moved to pro rata as the default.

When you cancel: ask the carrier specifically whether the cancellation is pro rata or short rate. The difference can be a meaningful number on a year's premium. Carriers must disclose the cancellation method in the policy, but the specific calculation is worth confirming before you cancel.

One related concept: minimum earned premium. Some specialty policies (surplus lines, certain commercial lines) have a minimum earned premium clause stating that a portion of the premium is non-refundable regardless of when you cancel. This is less common in personal lines but worth checking.