One of the most common phone calls we receive from customers goes something like this, "I just let my policy cancel- why am I getting a bill?" When we confirm that the customer didn't pay the premium due and let it cancel for non-payment, then we can assume the answer to the question is "earned premium."
If you're not in the insurance business, earned premium is a tough concept to understand. But it's our hope that this article will help you understand it better. If nothing else, it could save you a lot of headache. Because no one wants to get a bill for something you didn't want in the first place.
Definition of Earned Premium
There are several very technical definitions out there, but here's mine: earned premium is simply the money due on the policy from the original due date until the cancellation date. State laws, as well as insurance company guidelines, dictate the amount of time allowed until the official cancellation, so it could vary from state to state. But it's still a set period of time. Read on for an example of earned premium, as well as more detail to how it works.
How Earned Premium Works
Monthly premium due on January 1 is $100.00.
Customer doesn't pay by the due date (for whatever reason) and the policy finally cancels on February 1.
Customer will receive a bill for the premium from January 1 to February 1.
Technically, insurance was in force that entire month- the cancellation didn't occur on January 1 right? It occurred on February 1. And if a covered claim occurred, then the claim would have been paid.
So, the insurance company has the right to collect premium for that time because it was earned by being in force. In other words, it's owed.
How to Avoid Getting Billed for Earned Premium
Cancel the policy. Yes it's really that simple.
Whether by phone call, written documentation or other method, the BEST way to cancel a policy is via YOUR request. Coverage will end the day you request, so there is no possibility for an earned premium situation.
It's never in your best interest to let the policy cancel for non-payment.
Because you'll continue to get invoiced for that premium and if not paid, it will eventually go to a collection agency. And that's NO fun.
Just make a clean break of it, and save yourself a lot of trouble.
We're here to help you better understand your insurance. If you'd like to talk to one of our trusted pros, give us a call at (937) 592-4871. You can also request a quote for Ohio insurance here.