Calculate a pro rata insurance premium from the full-term premium and days covered or policy dates, with daily rate, pro rata factor and unearned premium.
Prorated Premium Formula
The following formula is used to calculate the prorated premium for a given period.
Variables:
- Pp is the prorated premium
- Pt is the total premium
- Tt is the total policy period in days
- Tp is the prorated period in days
To calculate the prorated premium, divide the total premium by the total policy period, then multiply the result by the prorated period.
What is a Prorated Premium?
A prorated premium is the amount of premium that is calculated based on the actual period of coverage within the total policy period. This is often used when a policy is canceled before its expiration date or when coverage starts mid-term. The straight-line model allocates premium proportionally to the covered period. It does not guarantee an actual refund: policy terms, short-rate penalties, minimum earned premiums and fees may change the amount.
How to Calculate Prorated Premium?
Select Prorated premium and enter the full-term premium, total policy days and covered days. Alternatively, select Prorated premium from dates and enter the policy start, policy end and coverage end. Date end points are exclusive; the policy end produces the full premium.
- First, determine the total premium (Pt).
- Next, determine the total policy period (Tt).
- Next, determine the prorated period (Tp).
- Finally, calculate the prorated premium using the formula Pp = (Pt / Tt) * Tp.
- After inserting the values and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Total Premium (Pt) = $1200
Total Policy Period (Tt) = 365 days
Prorated Period (Tp) = 180 days. The proportional premium is $1200 × 180 ÷ 365 ≈ $591.78; the unallocated premium is approximately $608.22 before any policy-specific adjustments.
