Sometimes, unforeseeable occurrences in your life or career can impact your auto insurance needs or budget. In response, you may have to make certain changes to your existing policy, such as increasing or reducing your coverage or canceling the policy. In this case, prorating would mean adjusting the cost of coverage to proportionally reflect the policy changes you made in the middle of the billing cycle. Prorating can increase or lower your insurance premium.
Your auto insurer can prorate your premium when your policy upgrade or downgrade is significant enough to affect the overall coverage cost. Follow these steps to estimate the cost implication of prorating your insurance:
Depending on the changes made, prorating can increase or decrease your premiums for the remainder of the policy term. Here's a hypothetical scenario demonstrating how to calculate the prorated amount.
Let's assume you initially paid $600 for 6 months of auto liability coverage. Three months into coverage, you decide to add comprehensive coverage to your basic protection. The upgrade lasts 6 months and costs $300. You may calculate the prorated amount as follows:
In this case, you'd pay $150 for the three months left on your existing policy, increasing the cost of coverage. Reducing your coverage would affect the prorated amount differently. The figure would also depend on the total premium amount you've paid at the time of policy downgrade.
You don't always owe your insurer some money after your premium is prorated. Sometimes, you're owed a refund by your insurance company once you've downgraded or canceled your policy before its expiry time. This is usually the case if you end your insurance subscription prematurely after initially paying the required quarter, semi-annual, or annual premium. A prorated refund is the amount paid back to you, the policyholder, based on the proportion of coverage utilized.
Assume you paid your annual auto insurance premium in full. Six months into coverage, you decide to cancel the subscription. Your insurer would pay back the premium you paid for the unused 6-month coverage. This would be your prorated refund.
However, you should consult with your insurance agent before signing out of your auto liability coverage. You can't legally drive without the policy in most states. So, premature termination of coverage may expose you to serious legal problems. If you're changing policies, make sure your new auto liability cover is in place as soon as possible.
€œPro-rata€ is a Latin word meaning a €œproportion of.€ In auto insurance, your insurer will prorate by first working out the balance in your current billing cycle for your existing plan. The cost of your policy upgrade and the number of months left on your current billing period will also be considered in your prorated amount calculations.
When looking to review your existing auto insurance policy, you must consider the legal and risk implications of your decision. The team at Little & Sons Insurance Services can help you get the right auto insurance policy for your needs and budget. Contact us today to learn more!
