What is the term for the premium refund amount returned to an insured when the insurer cancels a property policy?

The term for the premium refund amount returned to an insured when the insurer cancels a property policy is known as "pro rata." This refund method involves calculating the premium return based on the amount of coverage utilized during the policy term. When a policy is canceled, the insurer will calculate the unearned premium for the period that remains after the cancellation date. This ensures that the insured is refunded a fair amount reflective of the time the coverage was not used.

Choosing pro rata is appropriate because it allows for a straightforward calculation related to the exact period the policy was active versus the period for which the insured is entitled to a refund. For example, if a policy was for one year, and the insured cancels after six months, they would receive a refund equivalent to six months' worth of premium.

In contrast, other terms like short rate refer specifically to a different cancellation scenario where the refund amount is reduced by a penalty to cover administrative costs when a policy is canceled by the insured before the term is complete. Standard rate pertains to the pricing for coverage rather than to premium refunds, while adjusted premium generally refers to modifications based on claims or changes in exposure rather than cancellations.