Which statement about earned and unearned premium is correct?

Which statement about earned and unearned premium is correct?

• A. Earned premium is the portion not yet earned.
• B. Unearned premium is kept by insurer when policy cancels.
• C. Earned premium accrues as the policy term passes; unearned premium is refunded on cancellation.
• D. Unearned premium is never refunded.

Answer: (C)

Earned premium grows as time passes because the insurer has provided coverage for that portion of the term, so more of the premium has been earned the longer the policy remains in force. Unearned premium is the portion that hasn’t yet been earned and is typically refunded to the insured if the policy is canceled before the term ends. This is why the statement that earned premium accrues as the policy term passes and unearned premium is refunded on cancellation is correct. In practice, refunds are usually prorated based on time, though some cancellations may involve short‑rate adjustments.

Earned premium grows as time passes because the insurer has provided coverage for that portion of the term, so more of the premium has been earned the longer the policy remains in force. Unearned premium is the portion that hasn’t yet been earned and is typically refunded to the insured if the policy is canceled before the term ends. This is why the statement that earned premium accrues as the policy term passes and unearned premium is refunded on cancellation is correct. In practice, refunds are usually prorated based on time, though some cancellations may involve short‑rate adjustments.