Premium

The rate per unit of coverage multiplied by the number of units purchased — The rate is the cost per unit of insurance (for example, per $1,000 of life coverage), and the premium is the rate multiplied by the number of units purchased. The premium is what the insured pays to keep coverage in force. Rates are set based on mortality, expenses, and investment assumptions; the premium is the resulting dollar amount charged to the policyholder. The two terms are often used loosely in conversation, but on the exam they must be kept distinct.

National insurance concept

The portion of the premium covering the period of insurance protection that has not yet elapsed — The unearned premium is the portion of the premium corresponding to the future period of coverage not yet provided. It is a liability of the insurer — if the policy is cancelled, the unearned portion is returned to the insured. As time passes and coverage is provided, unearned premium converts to earned premium. Tracking unearned premium is central to accounting and to calculating cancellation refunds.

National insurance concept