Minimum Earned Premium
Minimum earned premium is the smallest amount of premium an insurer will keep no matter how early a policy is canceled. Even if a business cancels a policy three months into a twelve-month term, the insurer is entitled to retain this floor amount, usually a set percentage of the annual premium. The Allen Thomas Group flags this clause upfront so clients aren't blindsided by a refund that's smaller than they expected.
How It Works
Minimum earned premium clauses commonly set the floor at 25% of the annual premium, though the exact figure varies by insurer and policy. For example, on a $10,000 annual premium with a 25% minimum earned provision, canceling after just one month still means the insurer keeps at least $2,500, not a prorated $833 for that single month.
Minimum Earned Premium vs. Pro Rata Cancellation
| Approach | How the Refund Is Calculated |
|---|---|
| Pro Rata Cancellation | Refund is proportional to the unused portion of the policy term |
| Minimum Earned Premium | Insurer keeps at least a fixed percentage, overriding a strict pro rata refund below that floor |
Why This Clause Matters
Businesses that switch carriers mid-term, close a location, downsize, or sell the company often assume they'll get a proportional refund on the unused premium. A minimum earned premium clause can mean walking away with much less than that math suggests, which matters when a business is budgeting around a policy cancellation or a mid-year restructuring.
How The Allen Thomas Group Can Help You
We'll help you understand exactly how minimum earned premium affects your coverage and cost, then shop your policy across 15+ A-rated carriers to find the right fit.
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