short rate penalty

Definition

A fee incurred when an insured cancels a policy during a coverage period. The penalty is deducted from any returned premium the insured is owed. For example, an auto policy may require a 10% short rate penalty on unearned premiums if a policy is cancelled by the insured with two weeks remaining during a quarterly coverage period.

Use short rate penalty in a sentence

State Farm Insurance charges a ten percent short rate penalty to customers who try to cancel their auto insurance early.

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When my income was drastically reduced I decided the short rate penalty was more palatable than continuing to make payments I could not afford.

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Our new workers' compensation insurance was still less expensive even after factoring in the short rate penalty incurred by cancelling our previous policy.

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