What is an earned premium?

An earned premium represents the portion of a policyholder's premium that an insurance company has "earned" by providing coverage over a specific period of time. When a policy is in effect, the insurer receives premium payments for coverage; however, not all of that premium is immediately considered earned. As time passes and the insurer provides coverage, the premium amount is recognized as earned. This means that the insurance company can retain that portion of the premium, having fulfilled its obligation to provide coverage for the period that has elapsed.

Understanding earned premium is crucial in the insurance industry because it affects an insurance company's financial reporting and profitability. Once the coverage period has elapsed, the portion of the premium corresponding to that time becomes the insurer's revenue.

The other options do not accurately describe earned premiums. For example, the total amount charged for the policy pertains to the gross premium, which includes amounts that exceed just the earned portion. The fraction of the premium that has been used for coverage during a specified period may refer to how much of the premium represents coverage but does not capture the essence of what has been earned in revenue by the insurer. Lastly, the total premium plus any additional fees would not focus solely on the coverage aspect of the premium and would involve additional charges that do not