Loans > Loan Screens > Insurance Screen Group > Force Place Screen > Transaction Fields field group

The Amortization Method field determines the accounting method for amortizing the insurance premiums in the case of a refund due to the loan being paid off early or the customer obtaining other insurance and canceling the forced-place insurance. The available methods are described below.

All amortization methods will use an adjusted effective date if the Use Anniversary of 1st Due Date field on the Miscellaneous Fields tab on the Loans > Insurance > Policy Detail screen is selected. The adjusted effective date is used for determining the starting date for refunding. It may also be used for determining the remaining term.

01 -Pro-Rate (Straight Line)

Original Premium * Remaining Term / Policy Term = Unearned Premium

Original Premium - Unearned Premium = Earned Premium

Example: The original premium amount to be amortized is $1,550.00. The policy term is 60 months, the beginning of the amortization period (amortization start date) is 12-01-14, and the remaining term is 58 months.

The calculation is:

1550.00 * 58 / 60 = 1498.33 Refund (unearned premium)

1550.00 - 1498.33 = 51.67 (earned premium)

02 - Rule of 78s

Original Premium * (Remaining Term * Remaining Term + 1)) / (Policy Term * (Policy Term + 1)) = Unearned Premium

Original Premium - Unearned Premium = Earned Premium

Example: The original premium amount to be amortized is 1550.00. The term is 60 months, the beginning date is 12-01-14, and the remaining term is 58 months. The calculation is:

1550.00 * (58 * 59) / (60 * 61) = 1449.21 Refund (unearned premium)

1550.00 - 1449.21 = 100.79 (earned premium)

03 - Rule of Anticipation #1

Two different formulas are used when calculating the rule of anticipation amortization.

One formula uses a state rate and the premium received to calculate the amortization.

The other formula is based on premium rate tables. If you have a valid table number in the Premium Rate field, the second formula is used. Otherwise, the first formula is used and the State Rate and Premium Received fields become required for the amortization calculation.

Formula 1

(State Rate * Remaining Term) / 1200 = Re-Rate %

(Original Premium - (Period Payment * Months Into Term)) * Re-Rate % = Re-Rated Premium

Original Premium * State Rate % * Policy Term in Years = Re-Rated Premium

Re-Rated Premium / Original Benefit * Premium Received = Unearned Premium

Original Premium - Unearned Premium = Earned Premium

Example: The state rate is .5600. The premium received is 298.92 and the period payment is 493.79. The original term is 36 months, and the remaining term is 31 months. The original premium is 17,776.44. The beginning date is 09-01-01. The calculation is:

(.5600 * 31) / 1200 = .014467 (re-rate%)

17,776.44 - (493.79 x 5) = 15,307.49 (remaining benefit)

15,307.49 * .014467 = 221.45 (re-rated premium)

(17,776.44 * .0056) x 3 = 298.64 (original premium)

221.45 / 298.64 * 298.92 = 221.66 (refund to borrower)

Formula 2

Original Premium * (Rate for Remaining Term * Remaining Term) / (Rate for Policy Term * Policy Term) = Unearned Premium

Original Premium - Unearned Premium = Earned Premium

The rate for remaining term and rate for policy term are pulled from the premium rate table.

04 - Mean Method

(Pro-Rata + Rules of 78) / 2 = Unearned Premium

Original Premium - Unearned Premium = Earned Premium

Example: The original term is 60 months, and the remaining term is 58 months. The original premium is 1550.00.

(58 / 60) * 1550.00 = 1498.33 (pro-rata refund)

1550.00 * (58/2 + (58 + 1)) / (60/2 + (60 + 1)) = 1449.21 (rule of 78 refund)

(1449.21 + 1498.33) / 2 = 1473.77 (unearned premium)

1550.00 - 1473.77 = 76.23 (earned premium)

05 - Actuarial Method

I = Interest rate / 12

N = Number of months in loan term

M = Number of months in insurance term

T = Number of months elapsed from amortization start date to refund date

Present Value Formula at N months = (1 - (1 / (1 + I)) ^ N) / I

Present Value Formula at (N - T) months = (1 - (1 / (1 + I)) ^ (N - T)) / I

Present Value Formula at (N - M) months = (1 - (1 / (1 + I)) ^ (N - M)) / I

Unearned Premium = Original Premium * (Remaining Term - Present Value Formula at (N - T) months - Present Value Formula at (N - M) months) / (Insurance Term - Present Value Formula at N months - Present Value Formula at (N - M) months)

Earned Premium = Original Premium - Unearned Premium

Note: This calculation uses the Original Maturity Term field (MLOTRM) if it contains a value. If it is blank, the Loan Term field (LNTERM) is used.

Example: The original premium is 200.00. The remaining term is 57 months. The elapsed term is three months. The interest rate is 25%. The loan term is 60 months and the insurance term is 60 months.

I = .020833

N = 60

M = 60

T = 3

Present Value Formula at N months = (1 - (1 / (1 + .020833)) ^ 60) / .020833 = 34.0702863

Present Value Formula at (N - T) months = (1 - (1 / (1 + .020833)) ^ 57) / .020833 = 33.1813811

Present Value Formula at (N - M) months = (1 - (1 / (1 + .020833)) ^ 0) / .020833 = 0

Unearned Premium = 200.00 * (57 - 33.1813811 - 0) / (60 - 34.0702863 - 0) = 183.716791 = 183.72

Earned Premium = 200.00 - 183.72 = 16.28

06 - Rule of Anticipation #2

I = Interest rate / 12

N = Number of months in loan term

M = Number of months in insurance term

T = Number of months elapsed from amortization start date to refund date

Present Value Formula at N months = (1 - (1 / (1 + I)) ^ N) / I

Present Value Formula at (N - T) months = (1 - (1 / (1 + I)) ^ (N - T)) / I

Present Value Formula at (N - M) months = (1 - (1 / (1 + I)) ^ (N - M)) / I

Unearned Premium = Original Premium * (Remaining Term * (Insurance Term + 1)) / ((Remaining Term + 1) * Insurance Term) * (Remaining Term - Present Value Formula at (N - T) months - Present Value Formula at (N - M) months) / (Insurance Term - Present Value Formula at N months - Present Value Formula at (N - M) months)

Earned Premium = Original Premium - Unearned Premium

Note: This calculation uses the Original Maturity Term field (MLOTRM) if it contains a value. If it is blank, the Loan Term field (LNTERM) is used.

Example: The original premium is 20.07. The remaining term is 10 months. The elapsed term is eight months. The interest rate is 39.97%. The loan term is 18 months and the insurance term is 18 months.

I = .033308

N = 18

M = 18

T = 8

Present Value Formula at N months = (1 - (1 / (1 + .033308)) ^ 18) / .033308 = 13.376577

Present Value Formula at (N - T) months = (1 - (1 / (1 + .033308)) ^ 10) / .033308 = 8.387971

Present Value Formula at (N - M) months = (1 - (1 / (1 + .033308)) ^ 0) / .033308 = 0

Unearned Premium = 20.07 * (10 * 19) / (11 *18) * (10 - 8.387971- 0) / (18 - 13.376577 - 0) = 6.71

Earned Premium = 20.07 - 6.71 = 13.36

07 - Short Rate Method

The short rate factor reflects initial policy writing expense. The formula to generate the short rate table for each period is as follows:

D = Number of day in force

T = Term of policy in years (example: T = 0.75 for nine-month term)

E = Earned premium factor

I = Initial policy writing expense

(1)	E = (D / (T * 365)) * 100

(2)	(a) For time period 1 day to (22 * T) days

I = 0.226 * (D / T) + 5

(b) For time period (22 * T + 1) days to (182 * T) days

I = 10.1195

I = -0.054 * (D / T) + 20.1006

(3)	Percent to be charged or retained

= E + I

Example: The original premium is $100.00. The number of days in force is 26 and the original term is 1 year.

(1)	E = (26 / (1 * 365)) * 100 = 7.12329

(2)	(a) I = 0.226 * (26 / 1) + 5 = 10.87600

(b) I = 10.11950

Since the number of days is 26, the value for I is (b) 10.11950.

Retain Factor:	0.17243
Refund Factor:	0.82757
Retain Amount:	$17.24
Refund Amount:	$82.76

08 - California Actuarial

OP	= Original Premium

I	= APR / 12

J	= CA Discount 4.2/1200

N	= Number of months in loan term

M	= Number of months in original insurance term

T	= Number of months elapsed from inception to refund date

A > (M - 1)

= Present Value Formula at M - 1 months

A > (M - 1 - T)

= Present Value Formula at M - 1 - T months

A > (M - 1)

= (1 - (1 / (1 + J))M -1) / J

A > (M - 1 - T)

= (1 - (1 / (1 + J))M - 1 - T) / J

Refund = OP X

1+A>(M-1-T) - [[(1+J) x ((1+I)M-T - (1+J)M-T)] / [(1+I)N-T x (1+J)M-T x (I-J)]]

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1+A>(M-1) - [[(1+J) x ((1+I)M - (1+J)M)] / [(1+I)N x (1+J)M x (I-J)]]

Note: This calculation uses the Original Maturity Term field (MLOTRM) if it contains a value. If it is blank, the Loan Term field (LNTERM) is used.

09 - Mississippi Short Rate

E =	Number of elapsed days (property insurance inception date to the cancellation date)

F =	Compress/expand factor (property insurance term divided by 12 months)

D =	E / F (Number of days earned on the refund table is computed by dividing the elapsed days by the compress/expand factor. This value is used to find a refund percentage in the 12-Month Refund Table based on premium earned.)

T =	Percentage in the 12-Month Refund Table corresponding to D (number of days)

P =	1 - T (Calculation for unearned percentage.)

Refund = Premium x P

12-Month Refund Table
Days	%	Days	%	Days	%	Days	%	Days	%
1	5	52-54	25	121-124	44	192-196	63	279-282	82
2	6	55-58	26	125-127	45	197-200	64	283-287	83
3-4	7	59-62	27	128-131	46	201-205	65	288-291	84
5-6	8	63-65	28	132-135	47	206-209	66	292-296	85
7-8	9	66-69	29	136-138	48	210-214	67	297-301	86
9-10	10	70-73	30	139-142	49	215-218	68	302-305	87
11-12	11	74-76	31	143-146	50	219-223	69	306-310	88
13-14	12	77-80	32	147-149	51	224-228	70	311-314	89
15-16	13	81-83	33	150-153	52	229-232	71	315-319	90
17-18	14	84-87	34	154-156	53	233-237	72	320-323	91
19-20	15	88-91	35	157-160	54	238-241	73	324-328	92
21-22	16	92-94	36	161-164	55	242-246	74	329-332	93
23-25	17	95-98	37	165-167	56	247-250	75	333-337	94
26-29	18	99-102	38	168-171	57	251-255	76	338-342	95
30-32	19	103-105	39	172-175	58	256-260	77	343-346	96
33-36	20	106-109	40	176-178	59	261-264	78	347-351	97
37-40	21	110-113	41	179-182	60	265-269	79	352-355	98
41-43	22	114-116	42	183-187	61	270-273	80	356-360	99
44-47	23	117-120	43	188-191	62	274-278	81	361-365	100
48-51	24

10 – Pro Rata + 1

This method uses the same calculation as method 1 but adds one month to the remaining months. This causes it to lag one month behind.

This method will not create a remaining month that is greater than the original term of insurance.

11 – Rule of 78s + 1

This method uses the same calculation as method 2 but adds one month to the remaining months to create a one-month lag.

This method will not create a remaining month that is greater than the original term of insurance.

12 - Pro Rata Daily

NDAYS

= original term of loan in months

UDAYS

= unexpired days

P	= insurance premium

= rate

REFD

= refund

R = UDAYS / NDAYS

REFD = P x R

14 – Rule of Anticipation #3

OP	= Original Premium (INOBAL)

DS rate

= Indiana Discount Rate (.0540)

J	= Indiana’s Monthly Discount Rate ((1+DS rate)^(1/12)) - 1=.0044)

N	= Number of months in loan term (MLOTRM)

M	= Number of months in original insurance term (INTERM)

T	= Number of months elapsed from inception to refund date (Amortization Date - INDLAC)

A>M@J

= Present Value Formula at M months

A>(M-T)@J

= Present Value Formula at M-T months

J = .0044

VM =

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(1 + J)M

VM-T = 1

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(1 + J)(M-T)

A > M@J = 1 – (1/(1 + J))M

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A >(M – T)@J = 1 – (1/(1 + J))(M-T)

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Refund = OP x (N – T) – (N – M) * V(M - T) – A>(M – T)@J

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N – (N – M) * V(M) – A>M@J

15 – Take All at Month End

This refund method takes 100% of the Remaining Amount field on the Insurance Policy Detail screen when the loan is paid off or the policy is canceled.