Glossary · Insurance agency commissions
Cancellation notice
A cancellation notice is the written notice an insurer (or the insured) gives that a policy will end before its expiration date, stating the cancellation date and usually the reason; state law sets how much notice is required and for which reasons a policy may be cancelled.
What it means
Cancellation ends a policy mid-term; nonrenewal lets it run out. For personal auto, Triple-I’s explainer lists the reasons insurers may still cancel once a policy has been in force for more than 60 days: “You fail to pay the premium,” “You have committed fraud or made serious misrepresentations,” or “Your drivers license has been revoked or suspended.” The exact rules and notice periods are set state by state; the Texas Department of Insurance explains its own for home insurance.
How it works: the carrier mails the notice to the insured, often with a copy to the agency, and in some cases to lenders or other parties the policy names. A notice for nonpayment often gives a date by which payment keeps the policy alive (see grace period). If the date passes, the policy cancels and unearned premium is returned pro rata or short rate.
Why it matters for agency commissions
A cancellation notice is the earliest warning of a chargeback. If the policy cancels, the carrier takes back commission on the returned premium, often a statement or two later. Agencies that log notices as they arrive can match each chargeback to a real cancellation, and spot chargebacks on policies that were in fact reinstated.
How it shows on a commission statement
The notice itself is not on the statement. What follows is a cancellation line with negative premium and negative commission, dated at the cancellation effective date. If the insured paid in time and the policy was reinstated, there should be no chargeback, or a reversing line if one was taken.
Example
| Policy | Transaction | Premium | Rate | Commission |
|---|---|---|---|---|
| EX-73415 | Renewal, paid in month 1 | 1,800.00 | 12% | 216.00 |
| EX-73415 | Cancellation at month 4, pro rata | −1,200.00 | 12% | −144.00 |
| Net | 600.00 | 72.00 |
Four months of a twelve-month term were earned, so commission on eight months comes back. Commission rates on this page are invented; your agency agreement and commission schedule set the real ones.
Common mistakes to check
- Not logging cancellation notices, so chargebacks months later can’t be traced to a cause.
- Missing the reversal when a cancelled policy is reinstated after payment.
- Treating a nonrenewal like a cancellation; a nonrenewal produces no return premium.
Questions
What is a notice of cancellation in insurance?
Written notice that a policy will end before its expiration date, with the date and usually the reason. State law sets how much notice is required.
What is the difference between cancellation and nonrenewal?
Cancellation ends the policy during its term; nonrenewal lets it run to expiration and does not continue it.
What happens to agency commission when a policy is cancelled?
The carrier usually charges back commission on the returned, unearned premium, at the rate it paid.
Can a policy be cancelled for any reason?
Usually not after an initial period. For personal auto, Triple-I lists nonpayment, fraud or serious misrepresentation, and a revoked or suspended license; rules vary by state and line.
Sources
- Triple-I (Insurance Information Institute), What’s the difference between auto policy cancellation and nonrenewal? Retrieved October 14, 2026.
- Texas Department of Insurance, Home insurance canceled or not renewed? Retrieved October 14, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: grace period.