What is minimum earned premium?
Minimum earned premium (MEP) is the portion of a commercial insurance premium an insurer keeps even if you cancel the policy early — it is "earned" the moment coverage starts, regardless of how many days you actually use. It is commonly 25% or 100% on hard-to-place coverages and is non-refundable on cancellation.
Who this is for: Business owners, contractors, and risk managers buying commercial P&C coverage (especially surplus lines, general liability, or builders risk) who want to understand why a cancellation refund is smaller than expected.
TL;DR / Key takeaways
- Minimum earned premium (MEP) is a non-refundable share of premium the carrier earns at inception, written into the policy as a percentage (often 25%, sometimes 100%).
- It protects insurers against acquisition costs and "in-and-out" buyers on short-tail, easily-cancelled risks.
- MEP most often appears on surplus lines / E&S, builders risk, vacant property, events, and some general liability policies.
- If you cancel mid-term, your refund is the unearned premium, but capped so the carrier always keeps at least the MEP floor — pro-rata math does not override the MEP.
- Always read the cancellation and MEP endorsement before binding; a 25% MEP on a $10,000 premium means $2,500 is gone on day one.
How minimum earned premium works
When you buy a policy, the premium is "earned" by the insurer over the policy term — typically pro-rata (evenly by day) over 12 months. A minimum earned premium clause overrides that schedule for an initial slice of premium: that slice is fully earned at inception (the effective date), not over time.
So if you cancel early, the carrier first applies the MEP, then returns whatever unearned premium remains above it.
| Concept | What it means | Refundable on early cancel? |
|---|---|---|
| Earned premium | Premium the insurer has "used up" for coverage provided | No |
| Unearned premium | Premium for the unused remaining term | Yes (returned to you) |
| Minimum earned premium (MEP) | Floor the insurer keeps regardless of timing | No |
| Fully earned premium | 100% MEP — nothing is refundable once bound | No |
| Short-rate cancellation | Penalty method when the insured cancels (keeps extra vs. pro-rata) | Partial |
| Pro-rata cancellation | Even daily refund, usually when the carrier cancels | Yes |
Two cancellation math methods interact with MEP:
- Pro-rata: refund = premium × (unused days ÷ total days). Usually applies when the insurer cancels.
- Short-rate: refund is reduced by a penalty (often ~10%) when the insured cancels voluntarily.
The MEP acts as a hard floor under either method: even if pro-rata math would return more, the carrier keeps at least the MEP.
Why carriers charge a minimum earned premium
- Acquisition costs are front-loaded. Underwriting, broker commission, inspections, and policy issuance are paid at the start, not spread evenly.
- Anti-selection on short-tail risks. On builders risk or event coverage, a buyer could bind for a 12-month term, use 30 days, then cancel for a near-full refund. MEP prevents this.
- Surplus lines economics. E&S carriers writing distressed or unusual risks need certainty that they will not place capacity for free.
- Filing-driven. On admitted lines, MEP terms are part of the carrier's rate/rule filing approved by the state DOI; on non-admitted (surplus lines), they are set by the carrier's policy form.
Typical minimum earned premium by coverage type
These are illustrative industry-typical ranges, not quotes. Actual MEP is set by the specific carrier filing or policy form.
| Coverage line | Typical MEP | Why |
|---|---|---|
| Surplus lines / E&S (general) | 25% | Standard market convention for non-admitted paper |
| Builders risk (course of construction) | 25% – 100% | Short project terms; high anti-selection risk |
| Vacant / unoccupied property | 25% | Elevated, hard-to-place exposure |
| Special events / one-day liability | 100% (fully earned) | Single-use; no remaining term to refund |
| Contractors general liability (E&S) | 25% | Front-loaded underwriting + commission |
| Surety bonds | 100% (fully earned) | Premium is a fee, not pro-rated risk |
| Standard admitted GL / BOP | 0% (pro-rata) | Competitive admitted market rarely uses MEP |
How to check your minimum earned premium in 5 steps
- Open the policy declarations and locate the cancellation provisions and any "Minimum Earned Premium" or "Minimum and Deposit Premium" endorsement.
- Find the percentage (e.g., "25% minimum earned" or "premium is fully earned at inception").
- Identify the cancellation method — pro-rata vs. short-rate — and who triggers it (you vs. the carrier).
- Run the math: multiply your total premium by the MEP % to see the non-refundable floor.
- Ask your broker before binding whether the MEP can be reduced, waived, or whether an admitted carrier with pro-rata terms is available.
Real-world example (illustrative)
A general contractor in Texas buys a 12-month builders risk policy through a surplus lines carrier for a single ground-up project. Premium: $12,000, with a 25% minimum earned premium clause and short-rate cancellation.
The project finishes early and the contractor cancels at month 4 (about 120 days in).
- Pro-rata unearned would be: $12,000 × (245 ÷ 365) ≈ $8,055 refund.
- But the MEP floor is: $12,000 × 25% = $3,000 earned.
- Days actually earned pro-rata ($3,945) already exceed the MEP, so here the MEP does not bite — the contractor receives roughly the pro-rata/short-rate refund.
Now flip it: the contractor cancels at day 30. Pro-rata earned would be only ~$986, but the 25% MEP ($3,000) overrides it. The carrier keeps $3,000, refunding about $9,000 instead of ~$11,000. That ~$2,000 difference is the MEP at work. Illustrative only; actual figures depend on the policy form and state. [verify state]
Frequently asked questions
Is minimum earned premium refundable? No. The MEP portion is non-refundable once the policy is bound, even if you cancel the next day. Only premium above the MEP floor (the unearned premium) is returned.
What does "100% minimum earned" or "fully earned" mean? It means the entire premium is earned at inception and nothing is refundable if you cancel mid-term. This is common on special events, one-day liability, and surety bonds.
Does minimum earned premium apply if the insurance company cancels? Usually not for the insured's benefit — most MEP clauses are waived when the carrier cancels for reasons other than non-payment, and the refund reverts to pro-rata. Always confirm in the endorsement.
Is MEP the same as a short-rate penalty? No. Short-rate is a cancellation method that adds a penalty to pro-rata math. MEP is a fixed floor the carrier keeps. They can both appear on the same policy; the insured pays the greater of the two.
Why does my surplus lines policy have a 25% minimum earned premium? Non-admitted (E&S) carriers commonly use a 25% MEP because they take on harder-to-place risk and incur front-loaded acquisition costs. It is a standard market convention, not a red flag.
Can a minimum earned premium be negotiated or waived? Sometimes. On competitive accounts, a broker may secure a lower MEP or place the risk with an admitted carrier offering pro-rata cancellation. It is hardest to move on short-term and single-event coverages.
Do taxes and surplus lines fees count toward MEP? MEP is calculated on premium, not on surplus lines taxes or stamping fees, though those fees are themselves typically fully earned/non-refundable. [Morrow to confirm per state]
Why work with Morrow
- Independent agency, multiple carriers. Morrow places coverage across many admitted and surplus lines markets, so we can often find an option with lower or no MEP, or pro-rata cancellation, instead of accepting the first quote's terms.
- We read the cancellation language before you bind. We flag MEP percentages, fully-earned clauses, and short-rate penalties up front — no surprises at cancellation.
- Specialists in MEP-heavy lines. Builders risk, contractors, vacant property, and event coverage are exactly where MEP bites; we structure terms around your real project timeline.
- Fast certificate (COI) turnaround. Same-day certificates and additional insured endorsements when a GC or landlord needs proof.
- Real claims and billing advocacy. If a cancellation refund looks wrong, we go back to the carrier and audit the earned-premium math on your behalf.
Get a quote
Talk to a Morrow advisor before you bind — we'll show you the minimum earned premium in writing and shop for better cancellation terms. Request a quote or call [Morrow to confirm phone].
Licensed commercial P&C agency • Multiple admitted & surplus lines carriers • [Morrow to confirm licensed states & reviews]
Related reading
- Pillar: Commercial Insurance Basics
- Builders Risk Insurance
- Surplus Lines Insurance Explained
- Short-Rate vs. Pro-Rata Cancellation
- How Much Does General Liability Cost?
- Admitted vs. Non-Admitted Carriers
Author: Jordan Avery, CIC, CPCU — Commercial Lines Advisor, Morrow (Afthonea Inc, DBA Morrow) Published: June 2026 • Last updated: June 2026
Sources: National Association of Insurance Commissioners (NAIC) cancellation/non-renewal model guidance; state Departments of Insurance (DOI) cancellation and earned-premium rules; Insurance Information Institute (III); carrier policy forms and surplus lines (E&S) endorsement filings. State-specific cancellation methods vary — confirm with your state DOI. [verify state]