1. What is Short Rate Cancellation?

Short rate cancellation is a method used by insurance companies in Ontario, California to calculate refunds when a policy is canceled before its expiration date. It typically results in a smaller refund than pro rata cancellation.

2. How Does the Calculator Work?

The calculator uses the short rate formula:

Where:

• \( premium \) — Original insurance premium paid ($)
• \( pro\_rata \) — Fraction of unused policy period (0-1)
• \( ca\_factor \) — California-specific adjustment factor

Explanation: The formula accounts for the administrative costs and risk assumption by the insurer when a policy is canceled early.

3. Importance of Short Rate Calculation

Details: Accurate short rate calculation is crucial for both insurers and policyholders to determine fair refund amounts when policies are canceled mid-term.

4. Using the Calculator

Tips: Enter the original premium in dollars, the pro rata fraction (unused portion of policy), and the California-specific factor. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why use short rate instead of pro rata cancellation?
A: Short rate includes a penalty for early cancellation to account for administrative costs and the insurer's risk assumption.

Q2: What is a typical California factor value?
A: The factor varies by insurer and policy type, but is typically between 0.8 and 0.9 for many policies in California.

Q3: When is short rate cancellation applied?
A: It's typically used when the policyholder initiates cancellation before the policy expiration date.

Q4: Are there regulations governing short rate in California?
A: Yes, the California Department of Insurance regulates cancellation methods and factors.

Q5: Can I negotiate the short rate factor?
A: Generally no, as factors are filed with and approved by the insurance department.