What Does Return Commission Mean?
Return commission is the portion of an earned commission that an agent or broker must return to the insurer after a policy is canceled.
When an insured purchases an insurance policy through a broker or an agent, the insurer pays a commission to the broker or agent. Typically, the commission is a percentage of the premiums to be paid by the insured during the term of the insurance policy, which is commonly one year.
If the insured cancels the policy before the term is up, the broker or agent must return the portion of the commission that is unearned. Thus, if an insured cancels a one-year policy after six months, the broker or agent would have to return half of the commission that had been paid.
Insuranceopedia Explains Return Commission
Payment by commission in sales work is common in America. In the case of insurance brokers and agents, the commission paid has no impact on premiums paid by insureds. That is to say, one would pay the same premium for a given policy if they go through a broker or agent as they would if they dealt directly with the insurer. Thus, in general, when researching and pricing insurance, working through brokers or agents is recommended due to the expertise they provide.
The return commission system encourages agents and brokers to provide quality service to their insureds, since, if the insured is unsatisfied with a policy and cancels it, the provider would need to return a portion of the money they have earned.