Glossary · Insurance agency commissions
Unearned premium
Unearned premium is the part of a policy’s premium that covers the time remaining in its term, and that the carrier would generally refund if the policy were cancelled.
What it means
Premium is earned as time passes, so the unearned share falls every day until it reaches zero at expiry. For insurers, unearned premium is a liability on the balance sheet, held as a reserve, because it corresponds to coverage they still owe.
For an agency, the unearned premium on a policy is a rough measure of how much commission is still exposed to a chargeback if the policy cancels. Minimum earned premium provisions and non-refundable fees can reduce the refund below the unearned share.
How it shows on a commission statement
Unearned premium itself isn’t a statement line. It shows up indirectly as the return premium on a pro rata cancellation, and in the chargeback calculated on it.
Example
- Annual premium, $10.00 a day
- $3,650.00
- Days remaining in term
- 100
- Unearned premium
- $1,000.00
- Commission on it at 12%, exposed to chargeback
- $120.00
Common mistakes to check
- Treating all commission as earned the day the policy is written.
- Forgetting minimum earned premium when estimating a refund.
- Expecting a refund of fees that the policy says are fully earned.