An Independent Insurance Agent's Ultimate Guide to Chargebacks
March 28, 2022

Earning commission is great—unless you have to pay it back. If a client dies or cancels a new policy, you may experience a chargeback on your commission.

In this ultimate guide, we're going over everything you need to know about chargebacks, from how they work to how to avoid them. We've brought in expertise from all of our different departments for this article, and we hope you enjoy it!

Table of contents:

The Ultimate 2022 Tax Deductions Checklist for Independent Insurance Agents

What's a Chargeback In Insurance Sales?

For insurance agents, a chargeback occurs when an agent has to pay back a portion of their commission because their client passes away or cancels an insurance policy early.

Each company's chargeback schedule and contract is a little different, and chargeback rules also vary by product line.

It's common in Medicare sales to opt for commission advances. The carrier pays you several months of commission upfront, even though your client hasn't made that many months of premium payments.


While this is nice because you get paid all at once, if the client cancels their policy, you will owe back any commissions you haven't actually earned yet.

Let's break down what to expect for chargebacks in different senior market product categories.

Medicare Supplement Chargebacks

Expertise from Luke Hockaday, Director of Medicare Supplement Sales, and Michael Sams, Director of Sales Training and Development 

In our experience, chargebacks on Medicare Supplements are few and far between. Plus, the amount of the chargeback isn't as high as other product lines, so if it happens, the income loss a lot easier to absorb.

Most agents are paid Medicare Supplement commission as-earned. This just means you earn your commission as the client pays their premiums.

Some agents opt for commission advancing, which means you can receive some of your commission in advance, or before you've really earned it. Advances are typically 3 months, 6 months, or even a year.

A lot of companies charge a small fee in exchange for advancing, so most agents prefer to get paid as-earned. In that case, you won't really get charged back, and if you do, it would be a minuscule amount.

So, when it comes to Medicare Supplement chargebacks, there's not much to worry about! Other product lines, however, tell a different story.

Annuity Chargebacks

Expertise from Kirk Sarff, Director of Life Insurance & Annuity Sales

If someone pays for a Med Supp for the year and they pass away two months in, you'll get charged back on 10 months. It's not a lot of commission, so it doesn't sting as much. But it really stings when you get into bigger annuity sales.

The commission checks on annuity sales are a bit heftier than other product lines, and so the chargebacks are also going to be higher

In general, if there is death in the first 6 months of a contract, the agent is charged back 100%. If there's death in months 7-12, typically, the chargeback is 50%. After one year, you're clear.


Age can also play a role when it comes to annuity chargebacks. The older your client is, the more likely they are to pass away during their annuity contract. As a result, the chargeback rules are a bit more strict, and you have to plan for that.

You may have a 91-year-old client who is healthy, and you're not worried about him passing in the next 1-2 years. You'll write that annuity policy without worrying about the chargeback. But it plays into your decision when writing annuities sometimes.

Because annuity chargebacks can be so high, we do have some suggestions for planning. We'll cover that a bit later in this article.

Life Insurance Chargebacks

Expertise from Kirk Sarff, Director of Life Insurance & Annuity Sales

Within the life insurance world, chargeback rules vary depending on which type of life insurance it is. I'll just go through what you could typically expect under each product line, but please remember that things do vary slightly from carrier to carrier.

GI Final Expense

On any Guaranteed Issue (GI) life insurance product, there is almost always going to be a 100% chargeback if the client dies within the first two years.

For example, if I sell the Gerber Life GI final expense product to a client, and they die within 24 months, I have to pay ALL of my commissions back to the company.

The only exception is if the person dies by accident, such as a car wreck. In that case, you do get to keep your commission.

Level Final Expense 

With level final expense, you typically get to keep your commission, even if the client dies within the first year. As long as there isn't fraud on the application, you're good to go.

Term or Permanent Life Insurance Plans

With term life insurance and any permanent life insurance plan such as universal life or whole life, there is no chargeback for death.

The insurance company may investigate the death if it happens within the contestability period, but as long as there isn't fraud, there is no chargeback to worry about.

Medicare Advantage and Chargebacks

Expertise from Steve Spinner, Director of Medicare Advantage Sales

Medicare Advantage chargebacks can be a little more confusing than other product lines, because there are several different enrollment and disenrollment periods.

I'll try to break it down based on specific scenarios, but if you have any questions, don't hesitate to reach out to us.

AEP Enrollments and MA OEP Disenrollments

If a client enrolls in an MA plan during AEP (October 15-December 7), the agent gets paid half of their commission in January and the other half in February.

If that client is signing up for a Medicare Advantage plan for the first time in their life, the agent will get full commission, which is set by CMS. If not, the agent is entitled to the renewal commission. (Full comp is only paid once on an individual. After that initial full commission, any agent who sells an MA plan to that individual will get the renewal amount.)

Now, if that client decides to move or drop their MA plan during the OEP (January 1-March 31), there is a chargeback scenario. As an example, if the client disenrolls from their MA plan and chooses a new one with a different broker, the original broker will be charged back.


That original agent may have already been paid some commission in January, but if the client disenrolls in February, they'll owe it back.

There are other chargeback scenarios, but things can get a bit muddy. I'd really encourage you to contact me with specific scenarios, and I can walk you through it.

Planning for Chargebacks (And Avoiding Them)

Accidents happen. There are unexpected deaths. But if you write a policy with a client that isn't in the best of health, you should be very conservative and have a plan in the event of a chargeback.

Set Money Aside

Consider setting some money aside in the event your client dies. Ideally, you have a savings account that cushions you against chargebacks.

savings account for chargebacks

We also have agents who hold their commission back on certain policies. For example, Michael Sams had a very large annuity, and he asked his accountant to send that commission check to a savings account until the chargeback timeframe was up, which was about 6 months.

Pay Your Chargebacks

This may seem obvious, but if you owe a chargeback, pay it!

You don't want a Vector hit, meaning it'll be harder to get licensed with carriers because you owe an insurance company money.

Make sure you pay your chargebacks in a timely manner. There are many companies that will work with agents on that, too. You may have enough commission coming in with a company that they'll just allow that chargeback to deduct from each check.

There are other carriers that will set up a payment plan. They may allow me to pay off my chargeback monthly, as an example. Companies will really work with you.

Focus on Education First

When you use an education-first approach, the client makes the insurance selection based on the information you share. So really, they made the choice – not you! That lowers the risk of a chargeback due to policy cancellation by leaps and bounds.

When it comes to Medicare Advantage, people typically disenroll because they often don't understand their plan until they start using it. That's why it's so important to fully educate your clients on their plan.

Stay in Contact With Your Clients

My best advice (Steve Spinner here) is to stay in contact with your clients. I can't tell you how many times I hear from brokers that their clients won't call them to tell them they're moving MA plans. They just do it.

We have a broker that sends a letter out to his entire book of business that says if you're not happy, feel free to call me – there are things we can do. He keeps that open dialogue between him and his clients.

educate your medicare clients

At the end of the day, Medicare Advantage disenrollments will happen for tons of crazy reasons. We've even seen folks disenroll because they realized they couldn't get online and set up an online portal. But in general, the better communication you have, the less likely your clients are to leave their plan.

Take Your Commission As-Earned

One surefire way to avoid chargebacks is to take your commission as-earned. That way, you don't have to worry about giving any back if the client lapses or cancels their policy.

Do a Spousal Continuation

On an annuity, if the client dies, you can do a spousal continuation if they're married. If not, the company is coming back to get that money.

What happens if you don't pay off any chargebacks?

Let's say a new agent writes a bunch of final expense insurance, and the commission gets advanced. The client pays their premium monthly, but the agent chooses to take less commission to get it all upfront. So, let's say the agent takes that advance, and the client cancels their policy before they've paid a full year in premium.

The agent would owe their commission back to the insurance company, and that company holds that record. When the agent tries to get appointed with a new company, there is background information there. The new company will not bring you on if you owe another insurance company money.

Finally, that unpaid chargeback may eventually go on to collections, which harms your credit.


For commission-based independent agents, chargebacks are just part of the deal. You can't control when a client dies prematurely, and sometimes, clients do cancel a policy for reasons you could never anticipate.

We hope this guide helps you navigate the world of chargebacks so you can avoid and prevent them, or at the very least, know what to expect.

Good selling!

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