Earned Premium

The premium that an insurance company has collected for the duration of a policy that has expired is referred to as the earned premium. It represents the amount the insured party paid for a period when the insurance policy was in force but has subsequently ended. The insurance company views the accompanying premium payments it receives from the insured party as unearned because it covers the risk during that time. It can then be recorded as earned or as a profit once the allotted time has passed.

In the insurance industry, an earned insurance premium is frequently utilized. Since premiums are paid in advance by policyholders, insurers do not instantly view premiums paid for an insurance contract as earnings. The insurer’s responsibility starts when it receives the premium, even though the policyholder has fulfilled its financial obligation and is now entitled to benefits.

The premium is seen as an unearned premium—not a profit—when it is paid. That’s because, as was already established, the insurance provider still has a duty to fulfil. Only when the entire premium is seen as a profit can the insurer alter the status of the premium from unearned to earned.