Insurance Commission Glossary
Whether you're new to insurance or have been in the industry for years, you've probably come across commission terms that feel more like industry jargon than useful concepts.
This glossary is here to help make sense of it all. From basics like “first year commission” and “chargebacks” to more advanced topics like “retroactive tier jumping” and “contingent commissions,” these terms shape how agencies calculate and distribute earnings.
We'll break down key terms one by one, explaining what they mean, why they matter, and how Earn Base handles them automatically.
A straightforward guide to commission terminology, from A to Z.
Commission Types
Different types of commissions in insurance
Chargeback
A chargeback is the reversal of previously paid commissions when a policy is cancelled, lapses, or is rescinded within a specific time period. Think of it as the insurance company asking for their money back when the original reason for paying the commission no longer exists.
Contingent Commission
Contingent Commission is additional bonus compensation you earn by meeting specific performance metrics set by insurance carriers, typically based on profitability, volume, or loss ratios rather than just individual sales. Think of it as a 'profit-sharing bonus' where you get rewarded when your book of business performs well for the insurance company.
Override Commission
An override commission is additional compensation paid to managers based on their team's sales performance.
Split Commission
A split commission is when two or more insurance agents share the commission from a single sale.
Calculation Methods
How commissions are calculated
Retroactive Tier Jumping
Retroactive Tier Jumping is when reaching a higher commission tier recalculates your entire sales volume at the new, higher rate - not just the sales above the threshold. Think of it as getting a promotion where your entire salary gets adjusted upward, not just future earnings from that point forward.
Sliding Scale Commission
Sliding Scale Commission is a system where your commission rate increases smoothly and continuously with every dollar of sales, rather than jumping dramatically at fixed tier thresholds. Think of it as a gradual ramp rather than a staircase - your rate improves progressively with each sale instead of waiting for huge leaps at arbitrary breakpoints.
Tiered Commission Structure
A tiered commission structure is a system where your commission rate increases as you hit higher production levels, like climbing stairs where each step up gives you a better rate. The more you sell, the higher percentage you earn on your sales.
Compliance & Legal
Regulatory and compliance terms
Department of Insurance (DOI)
Department of Insurance (DOI) refers to state regulatory agencies that oversee the insurance industry within their jurisdiction, ensuring companies and agents comply with state laws while protecting consumers from fraud and unfair practices. Think of them as the insurance industry's watchdog with real teeth and the power to shut down your business.
Errors & Omissions (E&O)
Errors & Omissions (E&O) insurance is professional liability coverage that protects insurance agents and agencies from lawsuits claiming inadequate work, negligent advice, or mistakes that result in client financial losses. Think of it as your safety net when human error meets legal liability.
Insurance Basics
Fundamental insurance concepts
First Year Commission (FYC)
First Year Commission (FYC) is the higher commission rate you earn when you sell a brand new policy, compensating you for all the work required to find the client, complete the application, and get the policy issued. Think of it as a 'thank you bonus' for bringing in new business rather than just servicing existing clients.
Loss Ratio
Loss ratio is the percentage of premium dollars that an insurance carrier pays out in claims, calculated by dividing total claims paid by total premiums collected.
Persistency Rate
Persistency rate is the percentage of insurance policies that remain in force over a specific time period, typically measured at 13 months or 25 months after the policy issue date.
Renewal Commission
Renewal commission is the ongoing payment you receive each year when your clients' insurance policies renew, typically at a much lower rate than your initial first-year commission.
Earn Base Features
Features specific to our platform
Automated Commission Calculation
Automated Commission Calculation means using software to instantly compute agent commissions based on your agency's configured rules, eliminating manual spreadsheet work and human calculation errors. Think of it as having a tireless accountant who never makes mistakes, never takes breaks, and can process hundreds of complex calculations in seconds.
Commission Transparency
Commission Transparency means providing agents with complete visibility into exactly how their commissions are calculated, showing every factor, adjustment, split, and deduction that affects their earnings. Think of it as having the agency's commission calculation spreadsheet right in front of you, with nothing hidden behind closed doors.
Real-Time Commission Tracking
Real-Time Commission Tracking means your commission earnings update instantly the moment a sale is recorded, giving you immediate visibility into your income without waiting days or weeks for month-end statements. Think of it like checking your bank balance on your phone - you see the current state right now, not what it was two weeks ago.