Return Commission
What Does Return Commission Mean?
A return commission is the portion of an earned commission that an agent or broker must return to the insurer when a policy is canceled.
When an insured purchases an insurance policy through a broker or agent, the insurer pays a commission to the broker or agent, typically a percentage of the premiums paid by the insured during the policy term, usually one year.
If the insured cancels the policy before the term ends, the broker or agent must return the portion of the commission that is unearned. For example, if an insured cancels a one-year policy after six months, the broker or agent would be required to return half of the commission that had been paid.
Insuranceopedia Explains Return Commission
Payment by commission is common in sales roles in America. For insurance brokers and agents, the commission paid does not affect the premiums paid by insureds. In other words, the premium for a given policy would be the same whether the insured works with a broker or agent or deals directly with the insurer. Therefore, it is generally recommended to work with brokers or agents when researching and pricing insurance due to the expertise they offer.
The return commission system incentivizes agents and brokers to provide quality service to their insureds. If the insured is dissatisfied with a policy and cancels it, the agent or broker is required to return a portion of the commission they earned.
