At any time during the policy period, the earned premium plus the unearned premium for a policy equals its:

Question

Options

• Awritten premium
• Boral premium
• Ctotal premium
• Ddefined premium

• A
  85% (53)
• B
  2% (1)
• C
  8% (5)
• D
  5% (3)

Explanation

Written premium (A) is correct because it represents the total premium charged for a policy at inception - it simply gets divided over time into two components: the earned premium (the portion covering the time that has already passed) and the unearned premium (the portion covering the remaining policy period). These two parts always sum back to the original written premium, making the equation a fundamental identity in insurance accounting.

Oral premium (B) is not a real insurance term - it's a nonsense distractor. Total premium (C) is tempting but is not standard industry terminology for this specific relationship; "written premium" is the precise technical term used in insurance accounting. Defined premium (D) is similarly fabricated and has no established meaning in insurance.

Memory tip: Think of it like a pizza - the written premium is the whole pizza. As time passes, you eat slices (earned premium), but the uneaten slices (unearned premium) plus what you've eaten always equals the original whole pizza (written premium).

No community discussion yet for this question.