Streit v. Fire Insurance Exchange CA2/7
When you cancel an insurance policy during its term, you get a refund from your insurer of some of the premium you paid for the insurance. For example, if you cancel a one-year policy after six months, you might expect the insurance company to return 50 percent of the annual premium you paid. Or, if you cancel after three months, you might expect the insurance company to return 75 percent of your annual premium. You might think that whenever you cancel an insurance policy, you should get a pro rata or proportionate refund.
But, at least for the policies involved in this case, you would be wrong. Instead, you get something called a “short rate” return of the premium you paid, which is something less than a pro rata or proportionate refund. And that may be okay, if the insurer disclosed to you when you purchased the policy that if you cancel you get a short rate return of the premium and explained to you what a short rate is and how the insurer calculates it.
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