What Is an Earned Premium?
An earned premium is the part of an insurance premium that an insurer has earned by providing coverage over a set period. Insurers usually collect premiums up front, often for a six-month or one-year policy. The company does not earn that money all at once. It earns it gradually, as each day of the policy passes and the policyholder stays protected. The portion not yet earned is called unearned premium.
How It Works
Earned premium is typically recognized on a pro-rata basis, meaning evenly across the policy term. When a policy is sold, the full amount is recorded as written premium. As time passes, portions move into earned premium. This follows accrual accounting, which matches revenue to the period in which the service is delivered.
The basic calculation looks like this:
Earned Premium = Written Premium x (Days Elapsed / Total Days in Policy Term)
An Example
Suppose a one-year policy is sold for $1,200. After three months, roughly a quarter of the term has passed, so about $300 is earned and about $900 remains unearned. If the policyholder cancels early, the insurer may refund the unearned part, which reduces the premium it ultimately keeps.
Why It Matters to Investors
Earned premium is a common base for measuring an insurer's performance. The loss ratio, which compares claims incurred with premiums earned, relies on it. Earned premium also gives a more accurate view of revenue than written premium, since policies sold this year produce income over the following months. Comparing the two can show whether an insurer's business is growing or whether sales are rising faster than income is being recognized.
Updated October 23, 2026. For general education only; not financial, tax or legal advice.