Glossary

Minimum earned premium

A policy provision letting the insurer keep a stated percentage of the full premium if the policy is cancelled early, however little of the term has elapsed.

Also called: MEP, minimum retained premium, minimum earned premium clause

A minimum earned premium (MEP) clause sets a floor on what the insurer keeps when a policy ends before expiration. It is stated as a percentage of the total premium, such as 25%, and it overrides the normal pro rata calculation if that calculation would return more.

Example (hypothetical): a $20,000 annual policy carries a 25% MEP, so the floor is $5,000. The insured cancels after 30 days. Pro rata earned premium is $20,000 x 30 / 365, about $1,644, but the floor applies, so the insurer keeps $5,000 and returns $15,000. Cancel after 120 days and pro rata earned premium is about $6,575, which is above the floor, so the clause no longer matters.

MEP clauses are common on excess and surplus lines policies, program business and some premium-financed accounts. Rules on when they apply vary by state, and in many states an insurer-initiated cancellation requires a straight pro rata refund, so the clause typically bites when you cancel. Don't confuse it with a minimum premium on an auditable policy, which keeps a premium audit from reducing the charge below a stated amount.

Read the clause in the declarations or conditions before you bind, not after. Moving to another carrier a few weeks into a term can cost real money. earned premium explains the underlying mechanics, and the guide on premium audits: how they work and how to prepare covers audit minimums.

Last reviewed October 10, 2026

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Related terms

Earned premium The share of a policy's premium that matches the coverage period already elapsed, which an insurer can book as revenue and keep if the policy ends early. Written premium The total premium on policies an insurer issues or renews in a period, counted when written, whatever share of the coverage period has passed. Premium audit The insurer's after-the-fact review of payroll, sales or other exposures that replaces the pricing estimates, producing an additional or return premium. Excess and surplus lines Insurance placed with non-admitted insurers for risks the standard market declines or cannot price, with freer forms and rates but less regulatory protection. Binder Temporary written or oral evidence that coverage is in force on stated terms before the formal policy is issued.

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