Definition of Earned premium:
The term earned premium refers to the premium collected by an insurance company for the portion of a policy that has expired. It is what the insured party has paid for a portion of time in which the insurance policy was in effect, but has since expired. Since the insurance company covers the risk during that time, it considers the associated premium payments it takes from the insured party as unearned. Once the time has expired, it can then record it as earned or as a profit.
An earned insurance premium is commonly used in the insurance industry. Because policyholders pay premiums in advance, insurers don't immediately consider premiums paid for an insurance contract as earnings. While the policyholder meets his or her financial obligation and receives the benefits, an insurer's obligation begins when it receives the premium.
Part of a premium that is exhausted during the term of the policy.
How to use Earned premium in a sentence?
- An earned premium is the premium used for the time period in which the insurance policy was in effect.
- Insurance companies can record earned premiums as revenue after the premium's coverage period expires.
- Earned premiums can be calculated by using the accounting method and the exposure method.
Meaning of Earned premium & Earned premium Definition