A pro rata insurance premium is the price of coverage for part of a policy year, calculated as the annual premium times the covered fraction. Buy a policy mid-year, or cancel one early, and the insurer prices the partial period by simple proportion. It sounds fair, and it usually is, but there is one trap: cancellation is not always priced pro rata.
The pro rata calculator on the homepage applies this formula with daily precision.
Buying coverage mid-year
- Annual premium: $1,200
- Policy starts July 1, covering the remaining 184 days of a 365 day year
- Pro rata premium: $1,200 × (184 ÷ 365) = about $605
Insurers often quote a daily rate instead. The daily rate is $1,200 ÷ 365 = $3.29, and 184 days at that rate is the same $605. The daily rate phrasing matters later, when you cancel.
Cancelling mid-term: pro rata vs short rate
This is where the two refund methods diverge, and the difference is worth real money.
- Pro rata cancellation. You get back the premium for the unused days, at the straight daily rate. Cancel the $1,200 policy after 100 days and the refund is $1,200 × (265 ÷ 365) = about $871.
- Short rate cancellation. The insurer keeps a penalty on top of the used days, because early cancellation costs them setup and risk work. The refund comes from a short rate table and is always smaller than the pro rata figure.
Policies that promise "pro rata refund on cancellation" are the ones to prefer when you might cancel early. Where the terms only say "refund", assume short rate and ask for the table before you sign.
Price your partial period: enter the annual premium and the covered fraction. The calculator returns the pro rata amount instantly, free and no signup.
What changes the fraction
The fraction can be days covered, months covered, or exposure units for commercial policies (vehicle-months, employee-days). Multi-risk policies can prorate each section separately: a builders risk policy might prorate the liability part by days and the property part by construction phase. When the agent shows a number, ask which denominator each piece used.
Related guides
Pro rata refunds explained How to calculate pro rata: formula and worked examples Pro rata dividends explainedFrequently asked questions
How do I calculate a pro rata insurance premium?
Multiply the annual premium by the covered fraction: days covered divided by 365. A $1,200 policy covering 184 days costs about $605.
What is the difference between pro rata and short rate cancellation?
Pro rata refunds the unused days at the straight daily rate. Short rate keeps a penalty on top, so the refund is smaller. Check which one your policy uses before you cancel.
Do insurers always use 365 days as the denominator?
Usually, but monthly policies may prorate by months and commercial policies may use exposure units like vehicle-months. Ask which denominator applies to your quote.