Minimum Earned Premium

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Minimum Earned Premium A minimum earned premium (MEP) is the lowest amount an insurance company will retain if you cancel your insurance policy before the end of the term. It essentially represents the non-refundable portion of your premium that compensates the insurer for the administrative costs and resources invested in setting up and managing your policy, even if they don't collect the full premium for the entire term. MEPs are more commonly applied to business insurance policies than to personal insurance policies. The minimum earned premium comes into play mainly when a business owner decides to cancel a policy before its expiration date. For example, say you have a $500 premium on a one-year policy, and at the six-month mark, you decide to cancel coverage. If the insurance company has no minimum earned premium in place, it would refund you the remaining premium. In this case, that would be $250, half of the $500 premium. But if the company has a minimum earned premium of $300, the most it would refund you is $200, regardless of how early into the policy’s term you canceled it. MEPs serve as a deterrent against short-term policy cancellations. This is because if you cancel early, you'll lose the MEP, even if you haven't received coverage for the entire period. They also help insurance companies manage their revenue and ensure they can cover their administrative and operational costs associated with issuing and servicing policies, regardless of early cancellations. It is important to note that MEP is usually stated explicitly in your insurance policy documents. It is crucial to read and understand these details before purchasing any insurance coverage. In some jurisdictions the use of MEP IS regulated limiting the maximum percentage an insurance company can charge. #BeNewinsurance #InsurTech #inclusiveinsurance #insurance #reinsurance #takaful

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