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font-family: -apple-system, BlinkMacSystemFont, "Segoe UI", Roboto, Helvetica, Arial, sans-serif;
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margin: 0 auto;
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background: #f9f9f9;
border: 1px solid #e0e0e0;
border-radius: 8px;
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gap: 20px;
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@media (max-width: 600px) {
.sr-calc-grid {
grid-template-columns: 1fr;
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}
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width: 100%;
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background-color: #2c3e50;
color: white;
border: none;
padding: 12px 20px;
font-size: 16px;
border-radius: 4px;
cursor: pointer;
width: 100%;
margin-top: 10px;
transition: background 0.3s;
}
.sr-btn:hover {
background-color: #34495e;
}
.sr-results {
margin-top: 25px;
background: #fff;
padding: 20px;
border-radius: 4px;
border: 1px solid #ddd;
display: none;
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justify-content: space-between;
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margin-top: 10px;
font-style: italic;
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.sr-article {
margin-top: 40px;
line-height: 1.6;
color: #333;
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.sr-article h2 {
color: #2c3e50;
margin-top: 30px;
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.sr-article ul {
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}
Understanding the Short Rate Calculator
When you cancel an insurance policy before its expiration date, the refund you receive depends on the cancellation method used by your insurer. While a "Pro-Rata" cancellation refunds you exactly for the days you did not use, a Short Rate Cancellation allows the insurer to retain a penalty fee to cover administrative costs associated with early termination.
How Short Rate Cancellation Works
The "Short Rate" is essentially a financial penalty for breaking the contract early. Instead of receiving 100% of the unearned premium back, the refund is calculated, and then a surcharge is deducted. This is common in commercial insurance, liability policies, and some auto insurance contracts.
The math generally follows these steps:
- Earned Premium: The amount the insurance company keeps for the days coverage was provided.
- Unearned Premium: The amount corresponding to the days remaining in the policy term.
- Penalty: A percentage (usually around 10%) deducted from the Unearned Premium.
Short Rate vs. Pro-Rata
It is important to understand the difference before cancelling:
- Pro-Rata: If you paid $365 for a year and cancel after 100 days, you get exactly 265 days' worth of money back. No penalty.
- Short Rate: Using the same example, the insurer calculates the 265-day refund but subtracts a penalty fee (e.g., 10%). You receive less money back than with pro-rata.
When is this Calculator Used?
Use this calculator if you are planning to cancel a policy mid-term and your policy documents state that cancellations are subject to a "Short Rate" basis. This helps you estimate the actual cash value you will receive back, preventing surprises when the check arrives.
Inputs Explained
Annual Premium Cost: The total amount you paid (or agreed to pay) for the full year of coverage.
Short Rate Penalty (%): The percentage the insurer deducts from your refund. A common industry standard is 10%, but this can vary by carrier and state regulations.
Dates: The calculator uses the exact number of days between the start date and cancellation date to determine how much of the policy was "consumed."
function calculateShortRate() {
var totalPremium = parseFloat(document.getElementById('totalPremium').value);
var penaltyRate = parseFloat(document.getElementById('penaltyRate').value);
var startDateStr = document.getElementById('startDate').value;
var cancelDateStr = document.getElementById('cancelDate').value;
if (isNaN(totalPremium) || isNaN(penaltyRate) || !startDateStr || !cancelDateStr) {
alert("Please enter valid premium amounts, penalty percentage, and dates.");
return;
}
var startDate = new Date(startDateStr);
var cancelDate = new Date(cancelDateStr);
// Calculate time difference in milliseconds
var timeDiff = cancelDate.getTime() – startDate.getTime();
// Convert to days
var daysActive = Math.ceil(timeDiff / (1000 * 3600 * 24));
if (daysActive totalTermDays) {
alert("Cancellation date exceeds the 1-year policy term.");
return;
}
var daysRemaining = totalTermDays – daysActive;
// Calculate Pro-Rata Refund (Unearned Premium)
// Refund = Premium * (Days Remaining / 365)
var unearnedFactor = daysRemaining / totalTermDays;
var prorataRefund = totalPremium * unearnedFactor;
// Calculate Penalty
// Penalty is usually applied to the Unearned Premium
var penaltyAmount = prorataRefund * (penaltyRate / 100);
// Calculate Final Short Rate Refund
var finalRefund = prorataRefund – penaltyAmount;
// Sanity check: Refund cannot be negative
if (finalRefund < 0) finalRefund = 0;
// Display Results
document.getElementById('daysActive').innerText = daysActive;
document.getElementById('daysRemaining').innerText = daysRemaining;
document.getElementById('prorataRefund').innerText = "$" + prorataRefund.toFixed(2);
document.getElementById('penaltyAmount').innerText = "$" + penaltyAmount.toFixed(2);
document.getElementById('finalRefund').innerText = "$" + finalRefund.toFixed(2);
document.getElementById('srResults').style.display = "block";
}