Unearned Premium

DEFINITION of 'Unearned Premium'

The premium corresponding to the time period remaining on an insurance policy. Unearned premiums are proportionate to the unexpired portion of the risk, for which coverage has been sought by the insured party. Thus, it is deemed to have not yet been earned, or "unearned," by the insurer. It appears as a liability on the insurer's balance sheet, as it would have to be paid back upon cancellation of the insurance policy.

BREAKING DOWN 'Unearned Premium'

For example, assume an insurer writes a five-year insurance policy that is fully prepaid by the insured party. Insurance premiums paid are $2,000 per year, for a total of $10,000 for the five-year period. At the end of the first year, the insurer would have earned a premium of $2,000 and would have an unearned premium of $8,000.

RELATED TERMS
  1. Vanishing Premium

    A type of periodic fee, paid in exchange for an insurance policy, ...
  2. Premium Income

    1. In investing, income that is earned through the sale of an ...
  3. Premium

    1. The total cost of an option. 2. The difference between the ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  6. Short-Term Debt

    An account shown in the current liabilities portion of a company's ...
Related Articles
  1. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  2. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  3. Options & Futures

    Choosing The Best Disability Insurance

    Social Security benefits can be hard to collect. Find out why you need disability insurance to protect your income, and learn how to choose the right policy for you.
  4. Retirement

    Variable Vs. Variable Universal Life Insurance

    Do you know why you might need one policy versus the other? Read on to find out.
  5. Insurance

    Medicaid Vs. Long-Term Care Insurance

    These are not equal. Here's why you need to think twice before relying on the government-sponsored program.
  6. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  7. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  8. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  9. Your Practice

    Advisors: Win Over Millennials with Insurance

    Millennials don’t have the same values and goals as previous generations. Here are some tips on how advisors can adapt to their needs and wants.
  10. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
RELATED FAQS
  1. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  2. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  3. What is the formula for calculating the debt-to-equity ratio?

    Expressed as a percentage, the debt-to-equity ratio shows the proportion of equity and debt a firm is using to finance its ... Read Full Answer >>
  4. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  5. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  6. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center