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Short Rate Formula:
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The Short Rate Cancellation formula calculates insurance refunds in Ontario when a policy is cancelled before its expiration date. It applies a 90% factor to the pro-rata portion of the remaining premium.
The calculator uses the short rate formula:
Where:
Explanation: The formula calculates a pro-rata refund based on remaining coverage time, then applies a 10% penalty (90% refund) as per Ontario insurance regulations.
Details: Accurate short rate calculation is essential for insurance companies and policyholders to determine proper refund amounts when policies are cancelled mid-term, ensuring compliance with Ontario insurance regulations.
Tips: Enter the original premium amount in dollars and the number of months remaining in the policy term. All values must be valid (premium > 0, remaining months between 1-12).
Q1: Why is there a 10% penalty in short rate calculations?
A: The 10% penalty accounts for administrative costs and the insurer's loss of expected premium for the full term.
Q2: When does short rate cancellation apply?
A: It applies when the policyholder cancels the insurance policy before the expiration date, as opposed to the insurer cancelling.
Q3: Are there different cancellation methods?
A: Yes, pro-rata cancellation (full refund of unearned premium) may apply in some cases, while short rate includes a penalty.
Q4: Does this apply to all insurance types in Ontario?
A: The short rate method is commonly used for property and casualty insurance, but specific rules may vary by insurance type.
Q5: How accurate is this calculator?
A: This calculator provides an estimate based on standard Ontario short rate formula. Actual refunds may vary based on specific policy terms.