Calculate unearned insurance premium from total premium, policy term, and days elapsed, or solve for any missing value in the formula.

Pro-rata estimate assuming premiums are earned evenly. A cancellation refund can differ because of policy terms, short-rate charges, fees or minimum-earned premiums.

Related Calculators

Unearned Premium Formula

The following equation estimates unearned premium on a pro-rata basis, assuming the premium is earned evenly over the coverage period. A cancellation refund may differ under the policy terms.

UP = TP × (TRD) / (TCD)
  • Where UP is the unearned premium ($)
  • TP is the total policy premium ($)
  • TRD is the time remaining in the coverage period (days)
  • TCD is the total coverage duration (days)

To calculate the unearned premium, multiply the total premium by the fraction of time remaining compared to the total coverage duration.

What is an Unearned Premium?

Definition:

Unearned premium is the portion of an insurance premium that has been paid but not yet used to provide coverage. It represents the amount of the premium that still applies to the remaining future coverage period.

How to Calculate Unearned Premium?

Example Problem:

The following example outlines the steps and information needed to calculate the Unearned Premium.

First, determine the total premium. In this example, the total premium is $1,200.

Next, determine the total coverage duration. This is a 365-day annual policy.

Assume 90 days of coverage have passed, so there are 275 days remaining.

Finally, calculate the unearned premium using the formula above:

UP = $1,200 × (275 / 365)

UP ≈ $904.11

FAQ

Why does unearned premium matter?

Unearned premium identifies the portion allocated to future coverage under the earning basis used. This calculator estimates that portion by time; it does not determine an insurer’s reserve requirement or a policyholder’s legal refund entitlement.

How does an insurer handle unearned premium if a policy is canceled mid-term?

A cancellation refund depends on the policy and applicable rules. A pro-rata or short-rate method, fees or minimum-earned premium can make the refund differ from this simple time-based estimate.

Does the unearned premium always decrease evenly over time?

In many standard policies, premium is earned evenly over the coverage period. However, some insurance products, like certain commercial or specialty lines, might use a different basis for earning premiums, taking into account factors specific to the individual policy or industry.