Short-Rate Cancellation

Short-Rate Cancellation is a method of refunding premiums where the insurance company keeps a penalty, often 10%, of the unearned premium as an administrative fee for early termination. The Insurance Cop red-flags this as a “Switching Tax.” Before you fire your current carrier, you should always ask if they use a short-rate table. If they do, your savings with the new company must be large enough to offset this penalty for the mid-term move to be mathematically worth it.