What are Unearned Premiums – Can Earned Premium be Negative?

What are unearned premiums? An unearned premium is the amount of money that is collected in advance when a policy is undertaken. It can also be seen as an amount that corresponds to the period remaining on an insurance policy.

What are Unearned Premiums
What are Unearned Premiums

Furthermore, it is the portion of the policy premium that has not yet been earned by insurance because the policy still has some time before it expires.

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What are Unearned Premiums

If you are a policyholder hearing about an insurance premium would not sound new to you. However, for the benefit of those who don’t have an idea about it, here is what it means. An insurance premium is an agreed amount of money an insured person pays to the insurer for a risk covered.

Well, an unearned premium simply talks about the portion of the premium that has not been earned by the insurance provider. This is because the policy is yet to expire and the risk may likely happen. Hence, it is called the unearned premium.

How is Unearned Premium Calculated?

When calculating an unearned premium, both the earned and unearned premium will be calculated on the total premium written for a given month. If for example, you had 40,00 in the month of January, the earned premium will be 23/24 * 40,00. Following this example, you will be able to calculate your unearned premium.

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What is Earned Premium?

Well, earned premium works in the opposite form as unearned premium. It is simply the position of money that an insurance provider claims when an insurance policy expires. Hence, if your policy expired and the risk you insured did not happen, your insurance provider will claim the accumulated premium.

Do you Have to Pay Unearned Premium?

A property or casualty insurer must carry all unearned premiums as a liability in its financial statement. Hence, if the policy is calculated, the insurer would have to pay back a certain part of the original premium when the policy expires and the loss did not happen.

What is Unearned Premium Revenue?

Unearned Premium revenue is a liability account that is used by an insurance provider to record the portion of premium they have received from a customer whose policy has expired and the risk did not happen. Hence, sure money is directed to the company liability account.

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What is Unexpired Insurance Premium?

Unexpired Insurance is another term which is used for prepaid insurance. This is an amount that is deducted from the insurance premium expenses account in the profit and loss account and shown in the balance sheet as a current asset. This account, however, is not in the name of a specific person but is represented as a personal account.

Can Earned Premium be Negative?

Yes, an earned premium can be native. Well, the earned premiums could also be negative if the written premiums are less than the increase in UPR. However, if the incurred claims are negative, you could still get a positive loss ratio if the earned premiums are also negative.

What is Minimum Earned Premium on an Insurance Policy?

The minimum earned premium is a minimum retained premium. It is, however, seen as the smallest amount of money an insurance company is willing to accept for writing a business insurance policy for an anticipated insured person.

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Does Gross Insurance Include Tax?

Gross written premiums are the total premiums an insurer writes during a specific period before deductions for expenses such as ceding and commissions are made. The calculation for gross written premium includes all parts of direct and assumed premiums. However, they are not necessarily collected.

What are Outstanding Claims?

These are claims that are approved by the financial guarantee insurance provider for payment. However, they are not yet paid, hence, they are approved but payment is yet to be made. Such claims are, claims that are already included in policy liabilities.

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Is Prepaid Insurance a Liability or Equity?

Well, prepaid insurance is usually considered a current asset. This is because it deals with covering or is used in a fairly short time. Hence, it is considered an asset.

Do you pay Tax on Unearned Income?

Unearned income is taxed the same as earned income. However, there are some key differences worth nothing. The unearned income is not subject to social security or medicates payroll taxes as earned income is.

What is Unearned Interest?

Unearned interest is an interest that has been collected on a loan by a lending institution but has not yet been recognized as income. Hence, it is initially recorded as a liability. However, if a loan is paid off early, the unearned interest portion must be returned to the borrower.

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Does Cash Flow Means Profit?

The key difference between cash flow and profits is a profit that indicates the amount of money left over after all expenses have been paid out. Hence, cash flow indicates the net flow of cash into and out of a business.



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