1. What is a Short Rate Cancellation Calculator?

Definition: This calculator determines the refund amount when an insurance policy is cancelled before its expiration date using the short rate method.

Purpose: It helps policyholders and insurance professionals in Alberta calculate cancellation refunds according to standard short rate penalties.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( \text{Refund} \) — Amount returned to policyholder (CAD)
• \( \text{Premium} \) — Total premium paid (CAD)
• \( \text{Short Rate Factor} \) — Cancellation penalty (0 to 1)

Explanation: The premium is reduced by the short rate factor percentage to calculate the refund amount after penalty.

3. Importance of Short Rate Cancellation Calculation

Details: Proper calculation ensures fair refunds when policies are cancelled mid-term and helps insurance companies cover administrative costs.

4. Using the Calculator

Tips: Enter the total premium in CAD and short rate factor (default 0.1 or 10%). The factor must be between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical short rate factor in Alberta?
A: Common factors range from 10% to 25% depending on the insurer and time remaining in the policy term.

Q2: How is the short rate factor determined?
A: Insurers set factors based on administrative costs and risk assessment. Alberta has regulations governing maximum allowable factors.

Q3: When would I use this calculator?
A: When cancelling auto, home, or business insurance policies before their expiration date.

Q4: Is this different from pro-rata cancellation?
A: Yes, short rate includes a penalty while pro-rata gives a proportional refund without penalty.

Q5: Can I negotiate the short rate factor?
A: Typically no, as factors are predetermined, but you can ask your insurer about their cancellation policy.