Earned Premium

What is Earned Premium?

Earned Premium is Insurance policies usually run for a period of 12 months. An Insured can cancel an insurance policy at any time and request a pro rata refund of premium. The refund of premium is not normally affected by any claims that have been lodged, provided the claims occurring are within the cover and the claims have occurred during the period that the cover has remained in place. Given this principle, insurers must only take into the books of account the portion of premium that corresponds to actual elapsed time on risk. The portion of premium that is taken into the accounts is called earned premium, while that portion of premium yet to expire is termed unearned premium. This is why the most accurate loss ratio for underwriters to rely upon is the loss ratio to earned premium.

 

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