1. What is Short Rate Pro Rata Cancellation?

Short rate pro rata cancellation is a method used by insurance companies in Malaysia to calculate refunds when a policy is cancelled before its expiration date. It typically results in a smaller refund than a pure pro rata calculation to account for administrative costs.

2. How Does the Calculator Work?

The calculator uses the short rate refund formula:

Where:

• \( Premium \) — Original insurance premium amount (MYR)
• \( Short Rate Factor \) — Insurance company's short rate factor (typically between 0.1 and 0.3)
• \( Days Used \) — Number of days the policy was in force
• \( Total Days \) — Total policy term in days

Explanation: The formula deducts a portion of the premium based on the time used plus an additional penalty determined by the short rate factor.

3. Importance of Short Rate Calculation

Details: Understanding short rate cancellation helps policyholders estimate refund amounts when cancelling insurance policies prematurely, allowing for better financial planning.

4. Using the Calculator

Tips: Enter the original premium in MYR, the insurance company's short rate factor, days the policy was in force, and total policy term in days. All values must be valid (premium > 0, days used ≤ total days).

5. Frequently Asked Questions (FAQ)

Q1: What is a typical short rate factor in Malaysia?
A: Most Malaysian insurers use factors between 0.1 and 0.3, but this varies by company and policy type.

Q2: How does this differ from pro rata cancellation?
A: Pro rata gives a larger refund by simply dividing premium by days used. Short rate includes an additional penalty.

Q3: When is short rate cancellation typically applied?
A: Usually when the policyholder initiates cancellation, while insurers may use pro rata when they cancel.

Q4: Are there regulations governing short rate cancellations?
A: Yes, Bank Negara Malaysia provides guidelines, but insurers have some discretion in setting factors.

Q5: Can I negotiate the short rate factor?
A: Generally no, as it's predetermined in the policy terms, but you can ask your insurer about their cancellation policy.