Net Premiums Earned

What Does Net Premiums Earned Mean?

Net premiums earned refer to the total amount of premiums that an insurance company considers “earned” based on the proportion of time that has elapsed in relation to the policy’s effective life. This amount is recognized as revenue and belongs to the insurer.

Insuranceopedia Explains Net Premiums Earned

When a policyholder pays a premium, the insurer does not immediately recognize it as earned revenue. This is because the insurer has not yet fulfilled its obligation to cover potential claims upon receiving the premium, as the coverage has only just commenced. Instead, as time progresses and the policy approaches its end date, the premiums paid gradually become recognized as premiums earned. The full premium is considered earned only when the policy reaches its expiration date.