Earned vs Unearned Premium
Updated
Every premium is paid for a stretch of time. Earned premium is the part for time that has already passed. Unearned premium is the part for time still to come.
What each one is
Earned premium is the part of a policy's premium that applies to the part of the term that has already run. Premium is often paid in advance, but insurers usually earn it at an even rate across the term. [1]
Unearned premium is the part that has not been earned yet, because the policy still has time to run. If the policy cancels, the insurer would have to return part of it, so a property and casualty insurer carries unearned premium as a liability on its books. [2]
The two always add up to the full premium.
The math
Because premium is earned at an even rate, you can work it out with the share of the term that has passed.
Earned premium = premium × (days passed ÷ days in the term) Unearned premium = premium − earned premium
A worked example
Example. A customer pays $1,200 on January 1 for a 12 month policy.
| Date | Months passed | Earned | Unearned |
|---|---|---|---|
| January 1 | 0 | $0 | $1,200 |
| April 1 | 3 | $300 | $900 |
| July 1 | 6 | $600 | $600 |
| October 1 | 9 | $900 | $300 |
| December 31 | 12 | $1,200 | $0 |
Each month, $100 moves from unearned to earned. This example counts in months to keep it round; days give the exact figure.
Why it matters when a policy cancels
Unearned premium is what a customer can get back when a policy ends early. In a pro rata cancel, the refund is the full unearned premium. In a short rate cancel, the insurer keeps a bit more. Short rate vs pro rata cancellation shows both.
Example. The $1,200 policy above cancels on July 1. Unearned premium is $600, so a pro rata refund is $600.
Why it matters for commission
Commission is usually paid on the full written premium when the policy is sold. If the policy cancels, the carrier often takes back the commission on the unearned part. That is a chargeback.
Example. Your agency earned 10% on $1,200, which is $120. The policy cancels on July 1 with $600 unearned. The carrier takes back 10% of $600, which is $60.
Written, earned and unearned
Written premium is the full premium on policies sold in a period, counted when they are sold. Earned premium counts only the time that has passed. A month with big sales shows high written premium right away, while earned premium catches up over the term.
Example. In January you write 10 policies at $1,200 each. Written premium for January is $12,000. Earned premium for January is about $1,000, one month's share of each.
How Agency Edge shows it
Agency Edge records each sale's written premium, and its issued premium once it issues, and handles cancellations as full or prorated chargebacks. For Life and Health goals it can also count premium over the year with the Rule of 78 and Rule of 108. That is a production credit for your goals, not the carrier's earned premium. See Rule of 78 and Rule of 108.
Sources, read October 16, 2026
- IRMI, "earned premium (EP)" — https://www.irmi.com/term/insurance-definitions/earned-premium
- IRMI, "unearned premium (UEP)" — https://www.irmi.com/term/insurance-definitions/unearned-premium
Keep the sales log you check against
Written and issued premium for every sale, by product line and producer.