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Explaining Minimum Earned Premiums and Why You’re Receiving Invoices

Why am I receiving this invoice now? It’s for the Minimum Earned Premium. (Read more about it.)

When an insurance carrier offers a quote for a business (this includes co-operatives and condominiums), it includes subjectivities to the broker, which must be met in order for the broker to be able to bind the coverage on your behalf as per the quote.

In other words, your broker must provide them with any required information or documentation along with confirmation that the minimum earned premium payment has already been received at the broker’s place of business.

A minimum earned premium is the least amount of money an insurance company will accept for writing a business insurance policy for any period of coverage.  It covers the expenses of writing the business. This applies to binding a new policy or binding a renewal policy. They have already invested time and money into researching your business to offer the quote and require payment for any of the administrative costs involved to do so.

It usually shows up on the quote as a one-liner subjectivity. “The 25% minimum earned premium must be collected prior to binding.”

So when the quote is received by the broker, they, in turn, must bill the insured for the required minimum earned premium amount, and payment must be received for this non-refundable charge in order for the broker to be able to bind the insurance policy.

Having the practice of charging minimum earned premiums in place is a way for the insurance companies to manage risk and serves as a deterrent for clients who only wish to buy an insurance policy with the intention of canceling it after a single project or event. So it also helps them to manage their revenue as well in order to be able to pay out for claims.

This is the reason why you may receive an invoice to pay ahead of the effective date on the policy.  Without money on hand, we cannot bind the insurance policy.

Reach out to us with questions anytime; we’re here to help.

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