01 / The meaning
What it means.
It is different from a pro-rata calculation, where premium is allocated according to the portion of the insurance period used. A short-rate scale may retain an additional amount, and some products instead use minimum or non-refundable premiums. Australian policy documents do not all use the same terminology or formula, so the label alone is not enough to calculate what will be returned.
Broker fees, government charges and premium funding obligations can have separate treatment. Cancelling insurance may not cancel a finance agreement or eliminate an unpaid balance. Before replacing cover or closing a business, request a written calculation with its effective date and assumptions. Also consider whether cancellation could leave claims-made exposures from earlier work without an appropriate ongoing arrangement.
02 / Put it in context
A practical example.
Hypothetical example: a business cancels a twelve-month policy after four months. It asks for a breakdown of earned premium, any minimum retention, fees and funding settlement, rather than assuming that two-thirds of every amount originally paid will be refunded.
This example illustrates the term. It does not predict a claim outcome.
03 / Read the detail
What to check.
- Read the cancellation clause and any short-rate or minimum-premium provisions.
- Separate insurer premium refunds from broker fees, taxes and finance balances.
- Confirm the effective cancellation date and replacement or run-off arrangements.
04 / Start a useful conversation
A question for your broker.
What exact calculation would determine our net refund or remaining balance if we cancelled on the proposed date?
05 / Connect the terms
Keep the meaning in context.
06 / Apply it to your business
Related insurance guides.
Further reading
Read the source guidance alongside the relevant policy wording.
General information only. This does not take into account your objectives, financial situation or needs. Before acting, consider whether the information is appropriate for you. Cover is subject to insurer acceptance and the policy terms, conditions, limits and exclusions. Read the Financial Services Guide and the relevant PDS (where applicable) and/or policy wording before deciding.
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