National Real Estate Exam (PSI)Real Estate CalculationsHard
A seller prepaid a $1,260 annual insurance premium for the calendar year. Closing occurs on September 20, and the buyer will assume the policy. Using a 360-day year (30-day months), how much must the buyer reimburse the seller for the unused portion of the policy?
- A$420
- B$350
- C$245
- D$300
Show answer & explanationAnswer & explanation
Correct answer: B. $350
Daily rate = $1,260 ÷ 360 = $3.50. Days remaining after closing = 10 (rest of September) + 90 (October, November, December) = 100 days. Buyer owes seller = 100 × $3.50 = $350.
Why the other options are wrong
- A. This overstates the remaining days by using 120 days.
- C. This undercounts the remaining days.
- D. This uses only 3 full months, missing the extra 10 days.
Insurance Proration (30-Day Method)
Using the 360-day/30-day method, each month is treated as 30 days for calculating prorated amounts like insurance or taxes.
- 360-day year = 12 months × 30 days
- Daily rate = annual amount ÷ 360
- Count remaining days from closing date to year end
Memory trick: Every month is 30 days in proration math