Prorated Billing – What happens if you need to end an insurance policy early?
Most people treat insurance as a safeguard that exists quietly in the background of their lives. It is a necessity we need, but something we hope never to use. Many Canadians are in a cycle of paying their monthly premiums and reviewing their renewals with their brokers. However, if you find yourself in a situation where your insurance needs change, have you ever considered how this affects your premium?
Did you know that nearly a quarter of Canadians admit to not having read their home or car insurance documents? We understand why, policies tend to be lengthy legal documents that are comprised of confusing jargon. The Merit difference is your broker is here to help you break down your insurance and explain what happens if a policy is not paid and how to calculate your payment if you need to cancel your existing coverage.
What Does Pro-Rata Insurance Mean?
Pro-rata is a way to determine the refund amount to the insured party if a policy is cancelled prior to the renewal date. This means the insured only ends up paying for the number of days the insurance contract is in effect. The Prorated Percentage is the number of days the policy has been in force, divided by the total number of days between the effective date and expiry date of the policy.
What Would Cause A Need For Prorated Premiums?
Whenever the policyholder decides to make a change to their active policy, the premium is prorated. For auto policies, this could include changing your car model, adding a new driver, a change in coverage need (such as a decrease in daily distance travelled) or even qualifying for different discounts could prompt the need to prorate your billing.
Options for Pay Prorated Insurance Rates- Month To Month
There are two main options in terms of payment when it comes to prorated billing. The first being in one lump sum and the second is broken down into month to month payments.
For example, if you break a $1200 premium into $100/month, adding a second car for $1200 is going to make your monthly payment increase to $200/month. If you add the second car 3 months into your term, you are only required to pay for months 3 through 12.
If you add your second car right before, or after your invoice is generated, the change will not reflect until your next billing statement. This is because it takes about 21 days for a change to take effect. The additional premium to add the second car will be divided over the remaining instalments on the policy term.
What Are The Conditions With Cancelling?
A) Property policy
- The Named Insured shown on the Policy Declarations page may cancel the policy by mailing or delivering advance written notice of cancellation. Cancellation will be processed on a Short Rate Cancellation Method. The Short Rate Penalty is based on the days the policy has been in force.
- The Insurer may cancel the policy by mailing or delivering to the Named Insured written notice of cancellation at least:
(i) 5 days before the effective date of cancellation if notice of cancellation is personally delivered; or
(ii) 15 days before the effective date of cancellation if cancellation is for non-payment of premium; or
(iii) 30 days before the effective date of cancellation if cancellation is for any other reason.
Once a Property policy is cancelled the Insurer is under no obligation to offer reinstatement.
B) Automobile policy
The Named Insured shown on the Policy Declarations page may cancel the policy by mailing or delivering advance written notice of cancellation. Cancellation will be processed on a Short Rate Cancellation Method. The Short Rate Penalty is based on the days the policy has been in force.
Where your policy has been in effect for up to 60 days, the Insurer may only cancel your policy for a reason that the Insurer has filed with the Financial Services Commission of Ontario.
Where your policy has been in effect for more than 60 days, the Insurer may only cancel the policy for one of the following reasons:
- non-payment of premium
- you have given false particulars of the automobile to Insurer’s prejudice
- you have knowingly misrepresented or failed to disclose information that you were required to provide in the application for automobile insurance
- the risk has changed materially
Cancellation will be processed on a Pro Rata Cancellation Method. The Prorated Percentage is the number of days the policy has been in force, divided by the total number of days between the effective date and expiry date of the policy.
Automobile Cancellation Non-Payment
In the case of non-payment of premium, the Insurer may give you a notice in writing. An insurer must give you ten days notice if the insurer delivers the notice in person, or 30 days notice by sending the notice by registered mail to your last known address. The 30-day period starts on the day after the insurer mails the registered letter. The notice will inform you that you have until noon of the business day before the last day of the notice period to pay the arrears, plus an administration fee, failing which the policy will automatically be cancelled effective at 12:01 a.m. on the last day of the notice period. If you pay the arrears and the administration fee in time, then your policy will not be cancelled.
If Insurer has already given you two notices during the term of your policy. On the third notice Insurer only must give you five days notice if Insurer delivers the notice of cancellation in person, or 15 days notice by sending the notice of cancellation by registered mail to your last known address. Insurers are under no obligation to accept a late payment or to keep the policy in force after the effective date of cancellation.
Prorated billing and cancellation terms are unique and vary per provider. It is important to discuss with your broker if your insurance needs change or if you are considering leaving a policy term early. Call your Merit broker if you need more information on your policy, we are always here to help understand your options.
