Prorated Billing: Amend Your Insurance Mid-Term
For many, insurance feels like a safety net—something you pay for quietly in the background but hope you never need. Typically, Canadians regularly pay monthly premiums, check in with their brokers at renewal, and move on with life. But when your insurance needs to change, what happens to your premium?
It’s not surprising that nearly a quarter of Canadians haven’t read through their home or auto insurance policies. After all, these policies can be dense and loaded with legal language that’s hard to digest. At Merit Insurance, our brokers clarify the details, including what to expect if you cancel coverage early and how payments adjust in such cases.
What Does Pro-Rata Insurance Mean?
A pro-rata adjustment determines your additional premium or refund if a policy changes before renewal. This method calculates the premium based on the days the insurance was active, so you only pay for the time the policy was in effect. To get the Prorated Percentage, divide the days the policy was active by the total days in the policy term.
When Would You Need a Prorated Premium?
Policyholders sometimes adjust coverage mid-term. For auto insurance, this might include changing your vehicle, adding a new driver, or adjusting coverage if your driving habits change. Qualifying for new discounts can also trigger prorated billing.
Payment Options for Prorated Insurance – Month-to-Month
You can pay prorated bills in a lump sum or monthly payments.
For instance, if your premium is $1,200 annually, broken down to $100 per month, adding a second vehicle with an additional $1,200 premium will raise your monthly payment to $200. If you add the second car three months into the term, you’ll pay the increased premium only from month four onward. When changes happen close to your billing date, adjustments may not appear until the following statement, as processing usually takes around 21 days. The additional cost then spreads across the remaining installments.
Conditions for Cancelling
a) Property Insurance
The Named Insured can cancel the policy by providing advance written notice. A Short Rate Cancellation applies, which includes a penalty for the days the policy was active. Insurers may cancel a policy by providing written notice:
- 5 days before in-person delivery,
- 15 days prior for non-payment, or
- 30 days prior for other reasons.
After cancellation, insurers have no obligation to reinstate a property policy.
b) Auto Insurance
The Named Insured can cancel with written notice, following the Short Rate method. If active for up to 60 days, the insurer may only cancel for reasons filed with the Financial Services Commission of Ontario. After 60 days, cancellation reasons are limited to:
- Non-payment,
- False or incomplete information on the vehicle,
- Knowingly incorrect information,
- Material changes in risk.
Cancellations then follow the Pro Rata method, with refunds based on the time the policy was active.
Auto Policy Cancellation for Non-Payment
Insurers must notify you in writing for non-payment. Notices give:
- 10 days if delivered personally,
- 30 days if sent by registered mail.
The notice states that payment must be made by noon of the last business day before the cancellation date; otherwise, the policy will cancel automatically. After a third notice in the policy term, the insurer only needs to give five days’ notice in person or 15 days by registered mail. Insurers aren’t required to accept late payments or continue the policy after the cancellation date.
Prorated billing and cancellation terms vary by provider, so discussing your options with your broker is essential. If you’re considering early policy cancellation, your Merit broker can help you understand your choices and guide you through the process.
