What occurs under a Pro-Rata Cancellation of a policy?

Under a Pro-Rata Cancellation of a policy, the premium is adjusted based on the coverage time. This means that when the policy is canceled, the insurer calculates the refund based on the amount of time that has passed since the policy became effective versus the total policy term. Essentially, the insured pays only for the coverage they utilized, and a proportional (or pro-rata) refund is issued for the remaining period of the policy that is not being used.

This method of cancellation provides a straightforward and fair approach, as it ensures that the insured only pays for the actual coverage received up until the point of cancellation. Unlike full refunds or instant voids, pro-rata cancellations ensure that both the insurer and insured are treated equitably regarding the earned premium.