Chargebacks are one of the least-discussed and most financially damaging aspects of life insurance sales. Understanding what a fair chargeback rate looks like — and how to minimize your exposure — can be worth tens of thousands of dollars over your career.
What Is a Chargeback?
When a life insurance policy lapses (the client stops paying premiums) within the first 12–18 months, the carrier reclaims a portion of the commission that was paid when the policy was issued. This reclaimed amount is a “chargeback.”
Chargebacks exist because carriers advance commission at policy issuance — before the policy has generated enough premium to cover that cost. If the policy doesn’t persist, the carrier takes the advance back.
Industry Chargeback Benchmarks
- Excellent: Under 8% chargeback rate
- Good: 8–12%
- Average: 12–18%
- High risk: Above 20%
Final expense typically sees higher chargeback rates (12–20%) due to the senior market and income volatility. IUL and whole life typically see lower rates (8–14%) because buyers are more financially stable.
What a Fair Chargeback Policy Looks Like
Agency chargeback policies vary significantly. A fair policy typically includes:
- 12-month chargeback window (not 18 or 24)
- Partial chargeback on pro-rated basis (not 100% clawback after month 1)
- Chargebacks withheld from future commissions (not invoiced as a separate debt)
- Clear notification when a chargeback is applied
How to Reduce Your Chargeback Exposure
- Qualify leads harder — Chargeback rates drop dramatically when you sell to clients who can afford the premium long-term.
- Follow up at 60 and 90 days — Most lapses happen when clients forget to update payment methods. A quick check-in call saves policies.
- Match product to budget — Overselling (placing more coverage than the client budget supports) is the #1 cause of early lapses.
- Review your chargeback reports monthly — Know which carriers and which lead sources produce the highest lapse rates, and adjust.
When reviewing any job offer, always ask for the agency’s average chargeback rate by product line. Then plug it into the Deal Analyzer to see how it affects your projected net income.