Pro-rata premium calculations

When a premium-bearing change is made to a policy mid-term, affected items must prorate the premium against the term.

Note: When a policy is canceled mid-term, items must be prorated based upon the cancellation effective date.

Important information about premium calculations:

  • Pro-rata premium can be determined against different transaction types with different term lengths and granularity.
  • Pro-rata premium calculations are based on the selected term length with day granularity, meaning the premium is calculated to the day.
  • Pro-rata premium is calculated and stored per item.
  • Total pro-rata premium is calculated as the sum of all individual item pro-rata premiums.
  • Total policy pro-rata premium and policy term premium are calculated and stored.

The following are displayed in Rate Preview:

  • Pro-rata premium
  • Total pro-rata premium
  • Individual item pro-rata premium
  • Individual item policy term premium

Pro-rata premium per item calculation:

((units * (calculated rate - prior rate))/granularity) + prior pro-Rata premium

Pro-rata premium example scenario

  • Term: 1 year
  • Effective date: 1/1/2017
  • Granularity: day (365 units for 1/1/2017 – 1/1/2018)

Policy Inception – 1/1/2017

Coverage A

  • Full term amount: $365
  • Variables:
    • Units = days(1/1/2018 – 1/1/2017) = 365
    • Calculated rate = 365
    • Prior rate = 0
    • Prior pro-rata premium = 0
  • Pro-rata premium = ((365 * (365 – 0)) / 365) + 0 = $365

Endorsement – 5/3/2017

Coverage A

  • Full term amount: $730
  • Variables:
    • Units = days(1/1/2018 – 5/3/2017) = 243
    • Calculated rate = 730
    • Prior rate = 365
    • Prior pro-rata premium = 365
  • Pro-rata premium = ((243 * (730 – 365)) / 365) + 365 = $608

Endorsement – 9/2/2017

Coverage A

  • Full term amount: $1095
  • Variables:
    • Units = days(1/1/2018 – 9/2/2017) = 121
    • Calculated rate = 1095
    • Prior rate = 730
    • Prior pro-rata premium = 608
  • Pro-rata premium = ((243 * (730 – 365)) / 365) + 365 = $729

Additional calculation information