What Does Premiums Are Fully Earned Mean?
Premiums are fully earned is a situation in which enough time has passed on a set of premiums without claims being filed so that the insurance company has profited fully from the policies. Premiums cannot be classified as “earned” until enough time has passed without them having to be used to fulfill claims.
Insuranceopedia Explains Premiums Are Fully Earned
Earned premiums are calculated by multiplying the percentage of time that has passed on the policy by the amount of the premium has been received. For example, if a $10,000 premium was received for an insurance policy that was supposed to last for two years, and one year has passed, then the earned premium would be $5,000 (50% of 10,000). The premium would become fully earned once the full two years had passed and the entire $10,000 dollars became available as a profit.