Glossary · Insurance agency commissions
Minimum earned premium
Minimum earned premium is the part of a policy’s premium the carrier keeps however early the policy is cancelled, usually stated in the policy as a percentage of premium or a flat amount.
What it means
When a policy cancels mid-term, the carrier usually returns the unused share of premium, on a pro rata or short-rate basis. A minimum earned premium puts a floor under what the carrier keeps: if the policy cancels early, the carrier usually keeps whichever is larger, the premium earned so far or the minimum. Nancy Germond, writing for Big “I” Virtual University about the surplus lines market, notes that a surplus lines policy may carry a high minimum earned premium, so an insured who keeps it in force for a short time may owe the entire premium.
Minimum premium is a different term: the lowest premium a carrier will charge to write a policy at all. It sets the price at the start. Minimum earned premium limits the refund at cancellation.
How it shows on a commission statement
A minimum earned premium has no line of its own. You see its effect: a return premium smaller than the pro rata share, and so, usually, a smaller chargeback. Under most agreements commission follows the premium returned, but your agency agreement governs. The provision lives in the policy, not on the statement, which is one reason chargebacks are hard to check from the statement alone.
Example
- Written premium, 12-month policy
- $4,000.00
- Minimum earned premium, 25% (example)
- $1,000.00
- Cancelled after 30 days; earned pro rata (4,000 × 30 ÷ 365)
- $328.77
- Return premium on a pro rata basis
- $3,671.23
- Return premium with the 25% minimum
- $3,000.00
- Chargeback at 15% on the pro rata return
- −$550.68
- Chargeback at 15% on the return with the minimum
- −$450.00
Common mistakes to check
- Accepting a pro rata chargeback on a policy with a minimum earned premium. It takes back commission on premium the carrier kept.
- Assuming every policy has one. Check the policy before you apply it.
- Confusing it with a policy fee. A fee can also be fully earned, but it is a separate charge and usually carries no commission.
Sources
- Big “I” Virtual University, What Is the Surplus Lines Market?, by Nancy Germond, 2024, last updated September 18, 2026. Retrieved October 7, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in development. Related: commission chargeback calculator.