Unearned Premium Reserve
The reserve for premiums received but not yet earned by elapsed coverage, held because coverage remains to be provided.
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An insured pays a full annual premium of $1,200 for a life policy and cancels after three months. The $300 portion covering the three months of protection already provided is known as the:
Earned premium — The earned premium is the portion of the premium that corresponds to the period of coverage already provided, here three months of the twelve-month policy, or $300. The unearned premium is the $900 remaining for the nine months of future coverage, which is ordinarily returned to the policyholder upon cancellation. The earned and unearned split matters for cancellation refunds, for the insurer's financial statements and unearned premium reserve, and for accounting when policies are replaced. Level and gross premium describe pricing structure, not the allocation of premium over the policy period.
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