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# How is short rate calculated in insurance?

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Short rates represent a penalty for terminating a policy at other than the company's request. For example if the company were to cancel a policy at its request the prorate refund would be .507 of the annual premium at day 180 (1/2 year) The short rate refund on the same premium would be .400 at day 180. As you can see it is about 10% penalty. Example: on a \$1000 premium you would get \$507 back prorate but only \$400 back on short rate. Hope that helps.
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