General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
In insurance accounting, the difference between earned and unearned premium is that:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Premium is earned as time passes because the insurer's exposure continues. On an annual policy, the earned premium grows month by month as the coverage period elapses, and the unearned premium is the portion still covering the future — which is returned pro rata if the policy is cancelled. Agents must understand this because returning unearned premium is a routine part of the cancellation process.
Why the other options are wrong
- B) Earned and unearned premium are two portions of the same premium, not amounts divided by who collects them.
- C) Earned and unearned premium relate to time elapsed on a premium, not to the face amount or cash value of the policy.
- D) Unearned premium does not belong to the agent; it is the insurer's liability until the coverage period runs.
Memory hook
Time makes premium earned. The part still covering tomorrow is unearned — and refundable.