Pro Rata Cancellation

Definition - What does Pro Rata Cancellation mean?

A pro rata cancellation is a cancellation on an insurance policy in which the policyholder is fully refunded for premiums that have been paid in advance. It is an alternative to a short rate cancellation in which the refund incurs a penalty.

Insuranceopedia explains Pro Rata Cancellation

For example, a policyholder purchases a one-year policy for $1,000 but cancels it after six months. In a pro rate cancellation, they would receive a refund of $500, which is equivalent to the remaining six months of coverage they forfeited.

In comparison with short rate cancellations, pro rata cancellations are the more desirable option for policyholders as they offer better refund terms. What types of cancellation a policy allows depends on the insurer and the specific policy.

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