Premium is collected up front, but coverage is provided over time. Earned premium is the portion of the written premium that corresponds to the fraction of the policy period that has already elapsed. It represents the revenue the insurer has “earned” by providing protection for that time.

• Written premium is the full amount charged for the policy term.
• Unearned premium is the portion still attributable to future coverage and is held as a liability.
• As time passes, unearned premium becomes earned.

Insurers recognize earned premium as income on their financial statements. Return premiums from cancellations reduce both written and earned amounts. Accurate calculation of earned premium is fundamental to measuring loss ratios and underwriting profitability for any reporting period.

Actuaries and accountants monitor the relationship between earned premium and incurred losses. Sudden changes in premium volume or cancellation patterns can distort short-term ratios and require careful interpretation.