Which of the following is Correct?

Question

Options

• AUnearned premiums are calculated by simply taking the sum of the assumed written for the
• BEarned premiums are calculated by simply taking the sum of the premiums written for the period
• CEarned premiums are calculated by simply taking the sum of the premiums written for the period
• DEarned premiums are calculated by simply taking the sum of the premiums written for the period

• A
  16% (5)
• B
  72% (23)
• C
  3% (1)
• D
  9% (3)

Explanation

Option B is correct because earned premiums represent the portion of written premiums that correspond to the coverage period already elapsed - calculated by taking written premiums for the period and adjusting for the change in unearned premiums (Earned = Written − ΔUnearned). This reflects the revenue an insurer has actually "earned" by providing coverage over time.

Option A is wrong on two counts: it conflates unearned premiums with earned premiums, and uses the term "assumed written," which is not standard terminology in premium accounting. Unearned premiums are the unexpired portion of written premiums, not simply a sum of assumed amounts.

Options C and D appear identical to B in the truncated text shown, suggesting they likely differ in their full wording - common distractors would incorrectly omit the unearned premium adjustment or use the wrong time period (e.g., "premiums collected" instead of "premiums written").

Memory tip: Think of earned premiums like a hotel stay - if you prepay for 30 nights but only 20 have passed, the hotel has earned 20 nights and 10 remain unearned. Written premiums are the total booked; you subtract what's still owed (unearned) to get what's earned.

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