When used to calculate a premium, it must be adequate enough to pay expected losses according to frequency and severity, reasonable to the point that insurers do not not earn an excessive profit and not discriminatory or inequitable. Based on the amount of coverage needed, an individual will purchase the appropriate number of units of insurance with the total cost reflected in a premium payment. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to repair or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one once the repairs or purchases have been made. The reinstatement may be effective after the cancellation date, creating a lapse of coverage.
Some companies require evidence of insurability and payment of past due premiums plus interest.
Earned premium charged would be more than the pro-rata earned premium. Generally, the return premium would be approximately 90 percent of the pro-rata return premium. However, the company may also establish its own short-rate schedule. For automobile insurance, a surcharge is usually for accidents or moving violations. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.