What Happens If You Pay Your Client’s Premium and They Don’t Pay You Back?

Q: If I pay the insurance premium on behalf of a customer and they don’t pay me back, can I order the carrier to cancel the policy for nonpayment?

Response 1: No. Only the insured or the carrier has the right to cancel the policy—not the agent. From the carrier's standpoint, the premium has been paid. Fronting money for an insured is always a bad idea for this very reason. It's not a good business practice. You could try to take legal action.

Response 2: That’s the problem with paying your clients' bills. Never do this. To get your money back, you could take the client to small claims court—and then help them find a new agent.

Response 3: I think you just learned a hard lesson—never advance payment. The carrier has been paid, so unless you have an agreement, such as those used by premium finance companies, you can’t force the carrier to do anything.

Response 4: The carrier should not and will not reimburse you. First of all, you simply gave the insured an unsecured loan. The carrier has been paid, so they will not cancel for nonpayment. If a friend paid for the client and then didn't get reimbursed, could the carrier cancel for nonpayment? No, of course not. This is no different.

Second, and more important, you should not be paying premiums for your clients. That’s an example of rebating and is illegal in every state I know of.

Response 5: NO! NO! NO! The policy clearly states that the only parties who can cancel the insurance are "you"—the named insured—and "we"—the insurance company.

Response 6: Why in the world would you do that? This is not a good business practice.

Response 7: The parties involved in an insurance contract are the insurer and the insured. The agent is the middleman. If the insurer has been paid and there are no other valid reasons for cancellation, an agent can’t legitimately order a cancellation. We all like to trust others, but some sort of written agreement involving a down payment would have been the best course of action. 

This question was originally submitted by an agent through the VU’s Ask an Expert Service, with responses curated from multiple VU faculty members. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.