Chargeback math: what a nine-month advance really costs when a policy lapses at month four

Numbers made simple so the mechanics are clear. Substitute your contract and product.

A policy with an annual premium of 1,200 pays a first-year commission of 100 percent at your level, so 1,200. The carrier advances nine months, so 900 arrives when the policy issues.

The client pays four drafts of 100 each and stops. The carrier has earned four months of commission, 400. You were paid 900. The chargeback is 500, and it's deducted from your next commissions.

Now multiply. Ten policies like this a month, with 15 percent lapsing by month four, is 750 a month coming back out of your pay before you've noticed. If your production dips, the deductions don't, and the account goes negative.

What actually reduces it:

• Draft date verification on the account, not on memory.
• The 30-day and 60-day call, before the first surprise.
• Not overselling the premium. The extra 20 a month you talked them into is the reason the whole policy lapses.
• Knowing your 4-month and 13-month persistency by lead source, and cutting the source that produces lapses.

Post your persistency and your advance level. The floor can tell you whether your advance is working for you or against you.