Unearned Premium Reserve
Fund that contains the portion of the premium that has been paid in advance for insurance that has not yet been provided. For example, if a business pays an annual premium of $1000 on January 1, the money is not earned by the insurer until the insurance coverage has been provided. On July 1, $500 would have been earned and $500 would remain as unearned premium, belonging to the policyholder. If either party cancels the contract, the insurer must have the unearned premium ready to refund. For this reason, insurance regulators require that insurers maintain an unearned premium reserve so that, in the event an insurer must be liquidated, there is enough money to pay claims and refund the unearned premium. Because computations for individual policies would be cumbersome, regulators have devised formulas for figuring unearned premium reserves.
Popular Insurance Terms
Practice of a ceding company whereby insurance previously ceded to a re insurer is returned to that ceding company. ...
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Instrument that guarantees compliance with various city, county, and state laws that govern the issuance of a particular license to conduct business. ...
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Termination of a policy. Contract may be terminated by an insured or insurer as stated in the policy. If the insurance company cancels a policy, any unearned premiums must be returned. If ...
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