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It uses a table of factors that results in penalties that can be lower or higher than short rate (90% pro rata) depending upon the date of cancellation.A penalty method that where the penalty is 10% of the unearned premium.Most policies have a one-year term (365 days) but many other policies also have a 6-month term.

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For instance, if a 365-day policy with a full premium payment at the beginning of the term has been in effect for 120 days, 120/365 of the premium is considered earned.

Earned premium will not be returned to the insured if the policy is cancelled.

Short rate (old short rate) and short rate (90% pro rata) are penalty methods of calculating the return premium.

Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss.

This factor is multiplied by the written premium to arrive with the return premium.

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