text: A good example is when you buy a new car battery.  Maybe for one whole year if that battery goes bad, they will replace it free. After the year, if the battery goes bad you will not get a free replacement but will get maybe 75% of the price of your battery. The longer you have the battery the less the replacement sum will be. It is prorated according to how long you have had the use of the battery versus how much more use you are guaranteed. A five year battery that goes bad in the first year will be prorated to give you a free battery or a pretty big portion of the cost of that battery. A five year battery that fails in the fourth year will be prorated according to the fact that this is a four year old battery with one more year of warranty. You might just get 25% of the value of a new battery.