Fully Earned Policy

A "fully earned" policy means that the insurance premium is non-refundable, regardless of when the policy is canceled. From the moment the policy is effective, the insurer considers the premium to be fully earned. This concept is common in certain types of insurance policies where the risk of a claim does not decrease over time.

• Example: If a franchise owner purchases a one-year liability policy for their business and decides to cancel it after six months, they will not receive a refund for the remaining six months if the policy is fully earned. The insurer considers the premium for the entire term as earned upon inception because they have committed to covering the risk for the specified period.

Minimum Earned Policy

A "minimum earned" policy includes a clause that specifies a minimum amount of the premium that is non-refundable, even if the policy is canceled before the term ends. This minimum amount can be a percentage of the total premium or a specific dollar amount. If the policy is canceled, the insurer will refund any premium paid over the minimum earned amount.

• Example: Suppose a franchise owner has an insurance policy with a minimum earned premium of 25% on a $10,000 annual premium. If they cancel the policy after three months, having paid $2,500 (or 25% of the annual premium), they would not receive any refund because they have already paid the minimum earned amount. However, if they had paid $5,000 by the time of cancellation, they would be eligible for a refund of the difference, as the $2,500 minimum earned has been covered.