What is a chargeback in insurance?
A chargeback is when a carrier reclaims commission it already paid you, because the policy it was paid on lapsed, was cancelled, or was never fully earned. It happens most often on advanced commission: you were paid for a year of premium up front, the premium stopped early, and the unearned portion goes back.
The word describes a direction of money, not a penalty. Nothing has gone wrong procedurally — the carrier paid you for premium it expected to collect, did not collect it, and is taking back the part it did not earn.
What makes chargebacks bite is that they arrive late and in a lump. The policy lapses in month three; the chargeback appears on a statement weeks later, against production you have already spent. Agencies that carry a reserve against advanced commission survive a bad persistency quarter. Agencies that treat the advance as income do not.
The amount reclaimed depends on how long the policy stayed on the books. Most carriers run a declining schedule across the first year — full chargeback in the earliest months, tapering to nothing by month twelve — but the shape and length vary by carrier and product. Yours will be in your agent contract, and it is worth reading before you need it.
| Annualized premium | $1,200 |
|---|---|
| First-year commission at 100% | $1,200 |
| Advanced up front (75%) | $900 |
| Policy lapses month 3 — typically 100% reclaimed | −$900 |
| Same policy lapsing month 9 — typically ~25% | −$225 |
Illustrative. Schedules vary by carrier and product — check your contract.
Longer read: /blog/insurance-commission-advances-chargebacks