Earned Premium is a technical term used by Insurance Companies when they complete their accounting requirements. It can be defined as “the portion of a premium that is applicable to the cost of providing insurance during a specific accounting period.”

Insurance premiums, including car insurance premiums, are payable in advance. The term used most widely is monthly in advance although some policies require premiums to be paid a year in advance. An example of where insurers usually require annual premiums is a specialized policy available for the insurance of vintage or collectable cars.

The earned premium relates to the expired, consumed or used, part of the policy period. If the insurance companies have to do their accounting statistics on the 15th of a month, let’s say January, then all the premiums in their books received for the months of January cannot be included in their figures. They can only include the portion of the premiums covering the period from the 1st to the 15th of the month. The balance of the premiums for the rest of the month is referred to as unearned premiums.

Where a policy is terminated early, the insured will only be responsible for the earned premium portion up to the date of cancellation.