Earned premium is the portion of an insurance policy premium that has been used up by the policyholder during the policy period. It is the amount of money that the insurance company has earned from the policyholder for the coverage provided. The earned premium is calculated by multiplying the total premium by the percentage of the policy period that has elapsed.

 

Importance

The earned premium is an important concept in the insurance industry. It is used to determine the amount of money that the insurance company has earned from the policyholder for the coverage provided. It is also used to calculate the amount of money that the insurance company has to pay out in claims. The earned premium is also used to calculate the amount of money that the insurance company has to pay out in dividends to policyholders.

 

Example

For example, if a policyholder has a one-year policy with a total premium of $1,000, and the policy has been in effect for six months, then the earned premium would be $500. This is calculated by multiplying the total premium by the percentage of the policy period that has elapsed (6/12 = 0.5).

 

Table

Total Premium $1,000

Percentage of Policy Period Elapsed 6/12 = 0.5

Earned Premium $500

 

Key Takeaways

 

Conclusion

The earned premium is an important concept in the insurance industry. It is used to determine the amount of money that the insurance company has earned from the policyholder for the coverage provided. It is also used to calculate the amount of money that the insurance company has to pay out in claims and dividends to policyholders. The earned premium is calculated by multiplying the total premium by the percentage of the policy period that has elapsed.