Glossary

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.

Also called: short rate, short-rate penalty, short-rate refund

Short-rate cancellation applies a penalty when the policyholder, not the insurer, ends a policy before its expiration date. The insurer refunds the unearned premium at a reduced rate, using a short-rate table or a flat penalty, commonly around 10% of the unearned amount. The reasoning is that early cancellation costs the company the up-front expense of writing the policy. When the insurer cancels, or the policy calls for pro rata cancellation, no penalty applies.

Say your annual premium is $2,000 and you cancel with 185 days left, so the unearned premium is about $1,014 (hypothetical). A pro rata refund is $1,014. With a 10% short-rate penalty, the refund is about $912 and the insurer keeps roughly $101 more. The standard ISO homeowners form (HO 00 03) refunds pro rata when a policy is canceled, but insurers file their own wording and state amendatory endorsements vary. Florida's rules, for example, bar short-rate tables that return less than 90% of the pro rata amount unless the insurer justifies them.

Before you cancel, read the cancellation section of your policy and ask the insurer to show the refund calculation in writing. A mid-term switch to a new insurer can cost you the penalty. Ask whether waiting until renewal avoids it. See the canceling guide and the cancellation entry.

Last reviewed October 10, 2026

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Related terms

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. 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. Policy fee A flat charge some insurers add to a new or renewed policy for administrative costs, separate from the premium calculated for your coverage. 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. 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. Shopping your policy at renewal: how often and how When to re-quote your homeowners policy, the 60-day timeline, what to hold constant, what you can lose by switching, and how to move without a coverage gap.