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Earned Premium

What is an 'Earned Premium'

An earned premium is the amount of total premiums collected by an insurance company over a period that have been earned based on the ratio of the time passed on the policies to their effective life. This pro-rated amount of "paid in advance" premiums have been earned and now belong to the insurer.

Explaining 'Earned Premium'

The premium that a policyholder pays for an insurance contract is not immediately recognized as earnings by the insurer. While the policyholder has met his or her obligation by paying for the policy and thus the benefits that he or she could receive, an insurer has only just begun its obligation when it receives the premium. When the premium is first received it is considered an unearned premium, and is not recognized as profit. As time passes, however, the insurer incrementally changes the status of the premium from “unearned” to “earned”. Until the policy end date is reached the insurer is responsible for any claims made, and only when that date is reached will the entirety of the premium be considered profit.


Further Reading


Capturing the value premium in the United Kingdom
www.tandfonline.com [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

The equity premium in IndiaThe equity premium in India
www.nber.org [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

The equity premium in retrospectThe equity premium in retrospect
www.sciencedirect.com [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

The determinants of corporate financial performance in the Bermuda insurance marketThe determinants of corporate financial performance in the Bermuda insurance market
www.tandfonline.com [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

The managerial, regulatory, and financial determinants of bank merger premiumsThe managerial, regulatory, and financial determinants of bank merger premiums
www.jstor.org [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

Where is the value premium?Where is the value premium?
www.tandfonline.com [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

Some evidence of scale economies in workers' compensation insuranceSome evidence of scale economies in workers' compensation insurance
www.jstor.org [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …

Gross Written Premium of Insurance Companies in Cee Countries–Mismatching Problems in Financial StatementsGross Written Premium of Insurance Companies in Cee Countries–Mismatching Problems in Financial Statements
www.sciencedirect.com [PDF]
… From an economics perspective, insurance facilitates industrialists and other entrepreneurs to avoid the necessity of freezing capital to … One of the factors is earned premium income. It is the amount of sum premiums obtained by an insurance company over a time that have been …



Q&A About Earned Premium


How do you calculate an earned premium?

The formula for calculating an earned premium is as follows

When does a policyholder's payment become unearned?

A policyholder's payment becomes unearned when it has not yet been used to pay claims.

What is an earned premium?

An earned premium is the amount of total premiums collected by an insurance company over a period that have been earned based on the ratio of the time passed on the policies to their effective life.

When does a policyholder's payment become earned?

A policyholder's payment becomes earned when it has been used to pay claims and thus belongs to the insurer.

When does an insurer recognize its profit from a policyholder's payment?

An insurer recognizes its profit from a policyholder's payment when all obligations have been met, including paying any outstanding claims and administrative costs. At this point, all payments are considered earnings or profits for the insurer.