The Money You Are Owed Back

Unearned premium is the part of what you have paid that covers a period of time that never happened. Cancel a six-month policy after two months and four months of premium was never earned by the carrier. It comes back to you, and most people never think to check the arithmetic.

How it is calculated

There are two general approaches. A pro-rata refund returns the untouched portion in proportion to the time remaining. A short-rate refund does the same but keeps a cancellation penalty. Which one applies to your policy depends on the carrier, the policy form and who initiated the cancellation — so ask directly, before you cancel: will this be pro-rata, and if not, what is the penalty?

What eats into it legitimately

• Fees that were fully earned at issue, where the policy provides for them.
• Any unpaid balance already owed on the account.
• A short-rate penalty, where the policy applies one.

Everything else should come back. If the refund is much smaller than the untouched period suggests, ask for the calculation in writing. A carrier that has to write it down usually finds the same answer you did.

When to expect it

Refunds typically take a few weeks and are issued by the method you paid or by cheque to the address on file. Two practical consequences: make sure the address on the policy is current before you cancel, and if the card you paid with has expired, tell them where to send it instead.

The one to watch for: a financed premium

If your premium was financed through a premium finance company rather than paid to the carrier directly, the refund usually goes to the finance company first and is applied to your loan balance. That is normal, and it means the cheque you were expecting may never arrive because it went somewhere sensible. Ask which arrangement you are in.

Chasing it

1. Note the cancellation date and the amount you had paid through.
2. Ask, at the point of canceling, when the refund will be issued and how.
3. Diary it for three weeks out.
4. If nothing arrives, call the carrier with the policy number and the cancellation confirmation in hand.

Unclaimed refunds are surprisingly common and nobody chases them for you.

Switching soon? Ask us to line the dates up so the refund is clean and there is nothing to chase.