Glossary

Earned premium

The share of a policy's premium that pays for the part of the term already past; the rest is unearned and refundable on cancellation.

Also called: premium earned

Earned premium is the portion of the premium an insurer has "earned" by providing coverage over time. Insurance is paid for in advance, so on any given day part of your premium pays for coverage already provided (earned) and part pays for coverage still to come (unearned).

For a policy priced evenly over its term, the arithmetic is simple. On a six-month policy costing $900, the insurer earns about $150 a month. Two months in, $300 is earned and $600 is unearned. If you cancel at that point, the unearned $600 is what a pro rata cancellation refunds, less any fee or short-rate penalty your state and policy allow.

Insurers and regulators use earned premium as the denominator in key measures, because it matches premium to the period in which claims occur. The loss ratio divides losses incurred by earned premium, and loss ratios feed the combined ratio. Written premium, such as direct written premium, counts the full premium when a policy is sold and so measures sales volume instead. When an insurer is growing fast, written premium runs ahead of earned premium, which is one reason analysts look at both.

Last reviewed October 4, 2026

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Related terms

Direct written premium The total premium an insurer charges on policies it writes in a period, before reinsurance, used to measure market share and company size. Loss ratio The share of premium an insurer pays out in claims, often including claim-handling costs; a key number in rate filings and profit reports. Pro rata cancellation A cancellation in which the insurer refunds exactly the unused share of the premium, with no penalty for ending the policy early. Premium The amount you pay for an insurance policy over its term, built from the insurer's rate, your rating factors, coverage choices and discounts. Combined ratio A measure of insurer underwriting profit: claims and expenses as a percentage of premium, where under 100 means a profit and over 100 a loss.

Related guides

Loss ratios and rate filings: how insurers justify an increase How insurers use loss ratios, expense ratios and trend data to justify a rate change, what regulators check, and how to read a filing yourself. What NAIC auto insurance data measures A plain-English guide to the NAIC Auto Insurance Database Report, the main official source on auto insurance spending by state: what it measures and its limits.