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Earned Premium

A *gained premium in insurance terms is the quantity of cash the insurer has amassed that covers the part of the insurance coverage that has already expired. This really is computed by using an easy ration between the expired coverage period as well as the absolute life of an insurance policy’s coverage.earned premium

Why is that significant?

It’s important to an insurer since the money that’s been made, is theirs and won’t be refunded to a person in case that they ought to cancel or change their insurance premiums.

It’s important to your customer since the earned premium is cash they’ve already paid they can’t require a refund on or shift the conditions of the coverage around which the earned premium has been paid.

How will you compute the earned premium?

It’s a pretty easy matter to compute the earned premium on a coverage and a client can work out their earned premium conveniently and readily using a calculator or just a pencil and paper.

For example the earned premium of the basic insurance policy;

It’s not a leap year so you’ll find just 365 days over which your policy has to run.

Your policy costs $12,000 at the beginning of the entire year that you pay for in one payment on December 31st 2012, or so the insurance company already has your cash but on that day none of it could be categorized as “earned premium” because the span of coverage doesn’t start until the following day.

Then let’s say on April 30th you determine you need to cancel your coverage for one that better fits your requirements and you need to understand your earned premium and how much you might get back.

January has 31 days, February has 28 (at least in this example), March has 31 and it’s the 30th of April so that’s another 30 days. In total that’s 120 days of coverage that you just’ve paid for.

And that means you could expect a rebate of $12,000 minus $3,945.21 (and any fees deducted as part of your policy deal for early cancellation) of around $8,054.79.

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