Retroactive Rate Reduction

What Does Retroactive Rate Reduction Mean?

A retroactive rate reduction refers to a decrease in a premium rate that is applied to premiums already paid. This reduction is typically provided as a cash refund or as a credit that can be used toward future premium payments.

Insuranceopedia Explains Retroactive Rate Reduction

Retroactive rate reductions are comparable to dividends offered by mutual insurance companies, as both serve as a way for insurers to deliver added value to their policyholders. These reductions create an incentive for individuals to choose insurance policies from companies that offer them. After all, lower premiums—even when provided retroactively—can be highly appealing to prospective policyholders.