On which premiums, the insurer generally pays the regular commission to the agent following collection of the premium.

Question

Options

• Aitem billing
• Bcommission written
• Cprepaid premiums
• Ddirect billed

• A
  15% (7)
• B
  4% (2)
• C
  9% (4)
• D
  72% (34)

Explanation

Direct billing (option D) is correct because in this arrangement, the insurance company sends the premium bill directly to the policyholder and collects payment directly from them - only after that collection does the insurer pay the agent their earned commission. This "collect first, then pay commission" flow is the defining characteristic of direct billing.

Why the distractors are wrong:

• A. Item billing is not a standard commission-flow category; it refers to a billing format, not a mechanism that determines when or how agent commissions are remitted.
• B. Commission written describes commission calculated on written (bound but not yet collected) premiums - a different accounting concept, not a premium type that triggers post-collection agent payment.
• C. Prepaid premiums are typically handled through agency billing, where the agent collects the premium from the insured upfront and remits it to the insurer (minus commission), so the insurer is never the one collecting first.

Memory tip: Think of it this way - "Direct" means the insurer is in the driver's seat. The insurer bills, the insurer collects, then the insurer directs the commission to the agent. Any other billing method (agency, prepaid) puts the agent in the collection seat first.

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