Glossary

Pro rata cancellation

A cancellation method that refunds the unused part of the premium in exact proportion to the days remaining, with no penalty deducted.

Also called: pro-rata refund, pro rata refund, pro rata premium refund

Pro rata cancellation returns the part of your premium that covers the days after the cancellation date, with no penalty. It is the standard refund when the insurer cancels or nonrenews, and the ISO homeowners form (HO 00 03) provides that when the policy is canceled, the premium from the cancellation date to the expiration date is refunded pro rata. Some insurers apply short-rate cancellation instead when the policyholder cancels, so check your own policy.

The formula is: refund = annual premium × (days remaining ÷ days in the policy period). Say your premium is $1,800 for 365 days and you cancel with 122 days left (hypothetical). The refund is $1,800 × 122 ÷ 365, which is $601.64. A fee treated as fully earned, such as a policy fee, may be kept, and if your lender paid the premium from escrow, the refund may go to the lender first.

If you cancel because you are switching, line up the new policy's start date with the cancellation date so there is no gap, and tell your mortgagee. When the insurer cancels for nonpayment, the ISO form requires at least 10 days' notice, and states set their own rules. See the canceling guide and the cancellation entry.

Last reviewed October 10, 2026

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Related terms

Short-rate cancellation A cancellation method that returns less than the full unused premium when you end a policy early, so the insurer keeps a penalty on top of what it earned. Cancellation The ending of a policy before its expiration date, either by the homeowner at any time or by the insurer for reasons the policy and state law allow. Premium The price of a policy for its term, set by rebuilding cost, location, claims history, roof, deductible and other rating factors. Policy period The span between a policy's effective date and expiration date, usually 12 months, during which a loss must occur to be covered. Mortgagee The lender that holds the mortgage on the home, listed on the declarations page so it gets cancellation notices and shares in payments for dwelling damage. Renewal The insurer's continuation of your policy for another term, usually with a new premium and sometimes with changed deductibles, limits or conditions.

Related guides

How to cancel homeowners insurance and get a refund Cancel in writing with a date, tell your lender, and expect the unused premium back pro rata unless a short-rate rule applies. Steps, deadlines, late refunds. How to switch home insurance without a coverage gap Bind the new policy first, match the effective dates, get proof to your lender, then cancel the old policy in writing and collect the refund. Moving: insuring two homes and your things in transit How to time homeowners coverage on the old and new house, what your policy covers during the move, and what a mover's liability does and does not pay. Paying home insurance monthly vs annually What monthly payments cost beyond the premium, which discounts depend on how you pay, and what a missed payment does to the policy. A worked comparison. Questions to ask before you buy a homeowners policy Questions that expose differences between policies: roof terms, wind deductibles, claims handling, renewal and cancellation, and the answers to worry about. Insurance while you're selling your house Keep your homeowners policy until closing. How listing, showings, a vacant house, inspection repairs and an open claim affect coverage, and when to cancel.