Earned Premium

Earned premium is the portion of the premium that is attributable to the coverage period. It is calculated by multiplying the premium rate by the earned exposure. The earned exposure is the amount of time that the policy was in force during the coverage period.

For example, if a policy has a premium of $100 and an earned exposure of 6 months, the earned premium would be $50.

Earned premium is important because it is used to determine the amount of profit that an insurance company makes on a policy. The difference between the earned premium and the actual claims paid is the insurance company's profit.

Earned premium is also used to calculate the reserves that an insurance company must hold. Reserves are funds that are set aside to pay for future claims. The amount of reserves that an insurance company must hold is based on the expected claims that will be paid in the future.

Earned premium is a key concept in insurance accounting. It is used to determine the profitability of a policy and the amount of reserves that an insurance company must hold.