Unearned premiums are parts of premiums collected by insurance companies beforehand, but are subject to return to the client if the coverage ends before the term covered by the premium is complete. An unearned premium could be returned when an insured item is declared a total loss, and coverage on that item is no longer required. The unearned premium may likewise be returned if the insurance provider selects to cancel the coverage for some reason.
One example includes the refund of an unearned premium related to a car insurance policy. In the event the customer has paid the premium for a year ahead of time, then experiences a total destruction of the vehicle four months into that interval, there is a great chance the insurance provider will return two thirds of such prepaid premium. The provider only keeps that part of the annual premium for which coverage was actually provided.
Yet, it is important to note that the provisions found in the insurance contract govern the terms regarding the return of an unearned premium. Those provisions have to be in harmony with regulations and laws currently in force in the area where in fact the coverage is given. Depending on the content of laws that use within a given country or state, a special formula for computing the sum of the unearned insurance premium might be required.
For example, if the policyholder falsified information as a way to obtain the insurance coverage, the provider may possibly not be required to refund any portion of collected premiums, even if they’re technically unearned. Most policies will summarize the conditions that really must be met so as to apply for and receive the unearned portion of any premium already remitted to the insurance provider.
If the policyholder chooses to terminate the coverage for no obvious reason, or for motives like a desire to secure a similar policy with an alternate insurance provider insurance companies are highly unlikely to return any part of an unearned premium. For this reason, many individuals decide to hesitate until the time of time covered by the past paid premium is drawing near before switching companies for auto, health, and other kinds of insurance coverage. However in the event the insured party can establish that the supplier failed to respect the terms and conditions found within the provisions of the coverage, there’s a good chance that any unused part of the premium will probably be refunded.