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
- Earned premium is the portion of an insurance policy premium that has been used up by the policyholder during the policy period.
- It is calculated by multiplying the total premium by the percentage of the policy period that has elapsed.
- The earned premium 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.
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.
