Unearned Premium

AAA

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.

INVESTOPEDIA EXPLAINS '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. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  4. Insurance

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

    1. The total cost of an option. 2. The difference between the ...
  6. Commercial Package Policy (CPP)

    An insurance policy that combines coverage for multiple perils, ...
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. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  7. Investing

    What's MAGI?

    Modified adjusted gross income, or MAGI, is one aspect of a person’s income that is calculated while preparing a tax return.
  8. Fundamental Analysis

    Work In Progress (WIP)

    Work in progress, also know as WIP, is an asset on the company balance sheet. WIP is the accumulated costs of unfinished goods that are currently in the manufacturing process.
  9. Investing

    Ex Works (EXW)

    Ex Works, or EXW, is an international legal trade term specifying that the seller is responsible to make his goods ready for pick-up at his place of business.
  10. Fundamental Analysis

    Paid-Up Capital

    Paid-Up Capital is listed in the equity section of the balance sheet. It represents the amount of money shareholders have paid into the company by purchasing shares. It’s essentially two accounts, ...

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center