In the insurance business, in order for the insurer to start the coverage of the claims, the policyholder’s are required to pay the premiums indicated in the policy agreement. These premiums have two portions named as the earned premium and the unearned premium. The earned premium is the portion of the premium that the insurance company profits while the unearned premium is the opposite of it.
Premium unearned also referred as unearned premium is the portion of the premium which is known as the written premium that is considered to be unearned by the insurance company collected in advance but are still subject to be given back to the policyholder if in case the coverage will end right before the term covered by the premium is complete. In short, it is the written premium excluding the portion of the earned premium. The unearned premium may be given back when the item of the insured is recognized as a total loss as well as if the coverage on the item is not needed at all. In addition, the unearned premium may be given back if in case the insurance company will opt to cancel the pay out of the coverage because of some reasons.
However, it is significant to take note of the provisions that are to be found in the insurance contract in association of the unearned premium returns. These terms and conditions in the provision stated must be cohesive with the laws and regulations imposed in the spot offered with the coverage. Depending on the law content that is applied in a specific state or country, a designated specific formula for computing the unearned premium amount in insurance is required.
There are some cases that the insurance provider might not need to issue a refund on the unearned premium. For instance, if the insured created false information just to acquire coverage of the insurance, the insurer may not need to issue any refund on the portion of the premium collected even if it is technically not earned. Most of the insurance policies will provide an outline of the conditions that should be met first in order to receive and apply for the unearned premium part of the premium paid by the insurer to the insurance provider.
If in event the policy holder will opt to end the coverage with no valid reason or reasons like transferring for another insurance company of the same policy, the insurance company would most likely not return any single portion and penny of the unearned premium. That is why most people nowadays would opt to wait for the perfect time until the specified time covered by the very last premium paid is almost near before choosing to switch for another company to provide home, auto and other types of insurance coverage. However in the event that the insured party would found out and prove that the insurer didn’t follow the terms and conditions provided by the provisions of the agreed policy, good possibility is that the unused part of the premium will be returned.