Glossary · Insurance agency commissions
Premium finance
Premium finance is a loan from a premium finance company that pays a policy’s premium to the carrier or agency up front, while the insured repays the lender in installments with interest. If the insured stops paying, the lender can ask the carrier to cancel the policy, and the commission on the returned premium is usually charged back.
What it means
Premium finance companies are licensed by the states. New York’s Department of Financial Services, for example, cites Section 555 of the state’s Banking Law: “No person except a lending institution or an authorized insurer shall engage in the business of premium finance agency without a license therefor obtained from the superintendent” (source). Licensing, disclosure and cancellation rules differ by state.
How it works: the insured signs a finance agreement, usually with a down payment. The lender pays the rest of the premium and holds the power to request cancellation if installments stop. When a financed policy cancels, the carrier returns the unearned premium to the lender, not the insured, and charges back the commission on it.
How it shows on a commission statement
On the commission side a financed policy often looks like a policy paid in full: commission on the whole premium in one line, rather than per installment. Months later, a cancellation for non-payment can appear as a negative line with no warning from the insured. On agency bill, watch the account current: the down payment and the lender’s payment arrive separately.
Example
- Annual premium
- $12,000.00
- Down payment by insured
- $2,400.00
- Financed by lender
- $9,600.00
- Commission at 12% on full premium
- $1,440.00
- Cancelled at month 5: unearned premium returned to lender
- $7,000.00
- Commission charged back, 12% of $7,000
- −$840.00
Commonly confused
- Installment billing is offered by the carrier itself; premium finance is a separate loan from a third party. See installment billing.
- A premium trust account holds premium the agency collects; financed premium may pass through it on agency bill. See premium trust account.
- A policy reinstatement after a finance cancellation can bring the commission back. See policy reinstatement.
Common mistakes to check
- Expecting commission per installment on a financed policy that the carrier paid in full.
- Missing a non-payment cancellation requested by the lender, then being surprised by the chargeback.
- Not checking that a reinstated financed policy started paying commission again.
Questions
Who gets the refund when a financed policy is cancelled?
Generally the premium finance company, because it paid the premium. The carrier returns the unearned premium to the lender, which applies it to the loan.
Do agents get paid commission on financed premium?
Commission is paid by the carrier on the policy premium as usual. Financing changes when the carrier is paid, which often means commission on the full premium at once, and it can be charged back if the lender has the policy cancelled.
Sources
- New York State Department of Financial Services, Premium Finance Agency Licensing. Retrieved October 12, 2026.
Lapidar is commission reconciliation software for independent insurance agencies, in its founding pilot. Related: commission chargeback calculator.