Net Premiums Earned

What Does Net Premiums Earned Mean?

Net premiums earned is the total amount of premiums an insurance company considers “earned” depending on the ratio of how much time has passed on the policy to its effective life. This amount counts as earnings and belong to the insurer.

Insuranceopedia Explains Net Premiums Earned

When a policyholder pays a premium, the insurer does not immediately consider it as an earning. This is because the insurer has not fulfilled their obligation to pay for potential claims upon receiving a premium. The coverage has just started. Thus, only over time as the policy gets closer to its end date, does the premiums paid incrementally become premiums earned. The full premium is considered earned only when a policy reaches it end date.