Unearned Premiums

What Does Unearned Premiums Mean?

Unearned premiums are premiums that an insurance company receives before it provide coverage for a specific period. In other words, they constitute premiums a policyholder pays in advance. Because the insurance company has not actually provided coverage for unearned premiums, they are refundable should the policy be canceled.

Insuranceopedia Explains Unearned Premiums

For example, a company pays for 10 years of product liability insurance in one lump sum for a policy that costs $5,000 per year. After three years, the insurance company would have $15,000 of earned premiums and $35,000 of unearned premiums.