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: A franchise owner purchases a one-year liability insurance policy for their business with an annual premium of $12,000. If they cancel the policy after three months, they will not receive a refund for the remaining nine months. The insurer considers the entire $12,000 premium as earned from the start of the policy because they committed to covering the full period of risk.

If the policy is issued by a non-admitted insurance carrier, refunds may not be available under any circumstances, even if the policy is canceled.

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: A franchise owner has an insurance policy with a $10,000 annual premium and a minimum earned premium of 25%. If the policy is canceled after three months, and the owner has paid $3,000, they would only be eligible for a refund of $500. This is because $2,500 (25% of the annual premium) is non-refundable, and the remaining amount paid ($500) exceeds the minimum earned premium.

However, if the policy is issued by a non-admitted insurance carrier, the franchise owner may not receive any refund at all, regardless of the minimum earned clause.