Cancellation (insurance): Difference between revisions
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An [[insurance policy]] may be canceled before the end of the policy period. This has the effect of ending the policy coverage on the date of the policy '''cancellation'''. |
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{{About |cancelling an insurance policy |travel cancellation insurance |cancellation insurance}} |
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'''Cancellation''' of an [[insurance policy]] before the end of the policy period has the effect of ending the [[insurance]] coverage on the date of the cancellation. This can result in a partial [[return premium]] which can be calculated in different ways depending on the method specified in the policy. |
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There are three typical calculation methods: pro-rate, or using a penalty method such as short period rate (old short rate), and short period rate (90% pro rata). The return premium is generally calculated using a wheel calculator, a type of circular [[slide rule]] or an online version.<ref>{{cite web|url=http://www.wheel-calculator.com|title=Welcome to the Free Online Wheel Calculator|website=Wheel-calculator.com|publisher=Insurance Agency Systems, Inc.|archive-url=https://web.archive.org/web/20121106103229/http://www.wheel-calculator.com/|archive-date=2012-11-06|url-status=dead|accessdate=2016-11-06}}</ref> The return premium is calculated by calculating the unearned premium and then subtracting any unpaid premium and penalty for early cancellation. |
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==Cancellation Methods== |
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| ⚫ | |||
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==Refund methods== |
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| ⚫ | Three different calculation methods are commonly used. Cancellation methods are typically calculated using an online wheel calculator, a type of circular [[slide rule]].<ref>{{cite web|url=http://www.wheel-calculator.com/about |title=Archived copy |accessdate=2010-11-26 |url-status=dead |archiveurl=https://web.archive.org/web/20110718035253/http://www.wheel-calculator.com/about |archivedate=2011-07-18 }}</ref> |
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===Pro rata=== |
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A non-penalty method of calculating the return premium of a canceled policy. |
A non-penalty method of calculating the return premium of a canceled policy. |
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A return premium factor is calculated by taking the number of days remaining in the policy period divided by the number of total days of the policy. This factor is multiplied by the [[written premium]] to arrive with the return premium.<ref>http://www.irmi.com/online/insurance-glossary/terms/p/pro-rata-cancellation.aspx pro rata cancellation</ref> |
A return premium factor is calculated by taking the number of days remaining in the policy period divided by the number of total days of the policy. This factor is multiplied by the [[written premium]] to arrive with the return premium.<ref>{{cite web |url=http://www.irmi.com/online/insurance-glossary/terms/p/pro-rata-cancellation.aspx |title=pro rata cancellation - Insurance Glossary |website=IRMI.com |date= |accessdate=2016-11-06 |archive-date=2011-10-02 |archive-url=https://web.archive.org/web/20111002121444/http://www.irmi.com/online/insurance-glossary/terms/p/pro-rata-cancellation.aspx |url-status=dead }}</ref> |
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===Short Rate ( |
===Short Period Rate (old short rate)=== |
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A penalty method of calculating the return premium<ref>http://www.irmi.com/online/insurance-glossary/terms/s/short-rate-cancellation.aspx |
A penalty method of calculating the return premium<ref>{{cite web |url=http://www.irmi.com/online/insurance-glossary/terms/s/short-rate-cancellation.aspx |title=short-rate cancellation - Insurance Glossary |website=IRMI.com |date= |accessdate=2016-11-06 |archive-date=2011-10-02 |archive-url=https://web.archive.org/web/20111002121325/http://www.irmi.com/online/insurance-glossary/terms/s/short-rate-cancellation.aspx |url-status=dead }}</ref> often used when the policy is canceled at the insured's request. It uses a table of factors that results in penalties that can be lower or higher than ''short rate (90% pro rata)'' depending upon the date of cancellation. |
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===Short Rate (90% |
===Short Period Rate (90% pro rata)=== |
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A penalty method |
A penalty method where the penalty is 10% of the unearned premium. |
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==Policy term== |
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| ⚫ | The policy term is the period that an insurance policy provides coverage. Many policies have a one-year term (365 days) but other terms both longer and shorter are used. Policy terms can be for any length of time and can be for a short period when the period of risk is also short or can be for multi-year periods. |
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The date a policy's coverage is cancelled prior to the normally expiration date of a policy, often resulting in a [[return premium]] owed to the insured. |
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==Inception Date== |
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The date an insurance policy's coverage is started. Also called effective date or renewal date. |
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==Policy Term== |
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| ⚫ | The |
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==Return Premium== |
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When a policy is canceled before its expiration date a ''return premium'' may be owed to the insured. The ''return premium'' is generally calculated using a [[wheel calculator]].<ref>[http://www.wheel-calculator.com Online Wheel Calculator]</ref> The return premium is calculated by calculating the ''unearned premium'' and then subtracting any unpaid premium and penalty for early cancellation. [[Cancellation (insurance)#Short Rate (Old Short Rate)|Short rate (old short rate)]] and [[Cancellation (insurance)#Short Rate (90% Pro Rata)|short rate (90% pro rata)]] are penalty methods of calculating the [[return premium]]. |
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==Earned Premium== |
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Earned premium is the portion of an insurance [[written premium]] which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. For instance, if a 365-day policy with a full premium payment at the beginning of the term has been in effect for 120 days, 120/365 of the premium is considered earned. Earned premium will not be returned to the insured if the policy is cancelled. |
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==Unearned Premium== |
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Unearned premium is the portion for an insurance [[written premium]] which is considered "unearned" by the insurer. It is the [[written premium]] less the [[earned premium]]. The unearned premium would be returned to the insured if the policy is canceled using [[pro rata]] cancellation method, when the policy is cancelled with no penalty. |
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==Written Premium== |
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This is the premium registered on the books of an insurer or a reinsurer at the time a policy is issued and paid for.<ref>http://www.irmi.com/online/insurance-glossary/terms/w/written-premium.aspx</ref> |
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==Cancellation cover for travel insurance== |
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Cancellation cover applies if you have booked a trip to take place within the policy period, but you are forced to cancel your travel plans because of one of changes in circumstances, which are beyond your control, and of which you were unaware at the time you booked the trip. |
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Cancellation cover may vary but some typical examples are listed below. |
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* Unforeseen illness, injury or death of you, a close relative or any person with whom you have arranged to travel or stay during the trip. |
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* You abandoning your trip following a delay of more than 12 hours in the departure of your outward flight, sea-crossing or international coach or train journey, forming part of the booked trip’s itinerary, as a result of strike or industrial action (of which you were unaware at the time you booked the trip), adverse weather conditions, or the mechanical breakdown of, or accident of, the aircraft, sea vessel, coach or train. |
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* You or any person with whom you plan to travel being called up for jury service or being subpoenaed as a witness in a Court of Law (other than in a professional or advisory capacity). If you are made redundant and you qualify for redundancy payment under current legislation. Accidental damage, burglary, flooding or fire affecting your Home, occurring during the trip or within 48 hours before you depart, when a loss relating to your home in excess of a specific monetary amount is involved and your presence is required by the Police in connection with such events. |
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* Your compulsory quarantine. |
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==See also== |
==See also== |
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* [[ |
* [[Pro rata]] |
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* [[ |
* [[Travel insurance]] |
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* [[short rate]] |
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* [[Short Rate Table|short rate table]] |
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* [http://www.wheel-calculator.com online wheel calculator] (www.wheel-calculator.com) |
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==References== |
==References== |
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{{reflist}} |
{{reflist}} |
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{{Insurance}} |
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{{DEFAULTSORT:Cancellation (Insurance)}} |
{{DEFAULTSORT:Cancellation (Insurance)}} |
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[[Category:Insurance |
[[Category:Insurance]] |
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Latest revision as of 09:12, 29 April 2024
 | This article needs additional citations for verification. (November 2016) |
Cancellation of an insurance policy before the end of the policy period has the effect of ending the insurance coverage on the date of the cancellation. This can result in a partial return premium which can be calculated in different ways depending on the method specified in the policy.
There are three typical calculation methods: pro-rate, or using a penalty method such as short period rate (old short rate), and short period rate (90% pro rata). The return premium is generally calculated using a wheel calculator, a type of circular slide rule or an online version.[1] The return premium is calculated by calculating the unearned premium and then subtracting any unpaid premium and penalty for early cancellation.
Refund methods
[edit]Three different calculation methods are commonly used. Cancellation methods are typically calculated using an online wheel calculator, a type of circular slide rule.[2]
Pro rata
[edit]A non-penalty method of calculating the return premium of a canceled policy. A return premium factor is calculated by taking the number of days remaining in the policy period divided by the number of total days of the policy. This factor is multiplied by the written premium to arrive with the return premium.[3]
Short Period Rate (old short rate)
[edit]A penalty method of calculating the return premium[4] often used when the policy is canceled at the insured's request. It uses a table of factors that results in penalties that can be lower or higher than short rate (90% pro rata) depending upon the date of cancellation.
Short Period Rate (90% pro rata)
[edit]A penalty method where the penalty is 10% of the unearned premium.
Policy term
[edit]The policy term is the period that an insurance policy provides coverage. Many policies have a one-year term (365 days) but other terms both longer and shorter are used. Policy terms can be for any length of time and can be for a short period when the period of risk is also short or can be for multi-year periods.
See also
[edit]References
[edit]- ^ "Welcome to the Free Online Wheel Calculator". Wheel-calculator.com. Insurance Agency Systems, Inc. Archived from the original on 2012-11-06. Retrieved 2016-11-06.
- ^ "Archived copy". Archived from the original on 2011-07-18. Retrieved 2010-11-26.
{{cite web}}: CS1 maint: archived copy as title (link) - ^ "pro rata cancellation - Insurance Glossary". IRMI.com. Archived from the original on 2011-10-02. Retrieved 2016-11-06.
- ^ "short-rate cancellation - Insurance Glossary". IRMI.com. Archived from the original on 2011-10-02. Retrieved 2016-11-06.