How do chargebacks work?
An advance pays commission before all of it has been earned under the contract. If a policy ends early, the carrier may recover an unearned amount according to its schedule. Advance amounts, earning periods and chargeback events vary by carrier, product and agreement. Read your own signed contract rather than assuming a universal percentage or period.
A public Texas insurance order explains the concept of advance commissions and recovery when a policy cancels or lapses early. That source illustrates the mechanism; it does not determine the terms of your own business. Do not assume every product uses the same earning or recovery schedule.
Illustration only: suppose an invented agreement advances $600 and earns $50 for each paid month. After three qualifying paid months, $150 would be earned and $450 would remain unearned under that simplified assumption. Actual schedules can be different and can include other chargeback events.
- Month 1
Illustration: $50 earned; $550 of the invented advance remains unearned.
- Month 2
Illustration: $100 earned in total; $500 remains unearned.
- Month 3
Illustration: $150 earned in total; $450 remains unearned. The actual contract controls any recovery.
Why do chargebacks happen?
The common causes are a failed first payment, a changed bank account, a client who couldn't afford the premium, buyer's remorse during the free look period, a replacement by another agent, or a policy rescinded after a misstatement. Many are preventable with the right amount, the right draft date and early check-ins.
Start with the actual carrier notice and policy status rather than a commission estimate. A failed payment, cancellation, rescission or another contractual event can have different consequences. Confirm what happened before contacting the client or treating an amount as final.
The financial issue should not drive a pressure conversation. Ask what changed, help the client understand the available carrier process and avoid promising that coverage is active or can be restored. Client needs remain central even when the agent may owe money back.
How can agents reduce chargebacks?
Fit the premium to the budget, set the draft date to match payday, confirm the first draft, call at 30 days, act the same day a payment fails, and keep clients' details current. Some agents choose as-earned commission instead of advances to avoid large chargebacks, at the cost of slower pay.
Build the care process before the first policy is placed. Confirm the family understands the premium and payment timing, document delivery and keep a clear way to report a change. Use actual carrier information to confirm the first draft and follow up on notices promptly.
As-earned compensation changes the timing of pay and can reduce exposure to an unearned advance, but it does not remove every contractual obligation. Ask what choices are available under your agreement and keep a financial reserve appropriate to your own business, with qualified advice where needed.
- First 90 days checklist
Explain premium and draft date; confirm delivery; check the first actual draft; offer a 30-day check-in; act promptly on notices; keep contact and beneficiary details current; record the next review.
A note before you use this guide
- Insured OS is software for insurance agents. This page is general education for agents, not insurance, tax, legal or financial advice for consumers.
- This is general information, not legal advice. Rules change and differ by state. Check the official source linked in each section, and talk to a licensed attorney about your situation.
Client care after the sale
Core’s chargeback watch and lapse-rescue workflow help organize notices and caring follow-up. The carrier’s actual record and your contract remain the source of truth.