What is unearned premium?

Unearned premium refers specifically to the portion of the insurance premium that has been paid by the policyholder but has not yet been earned by the insurer. This typically occurs because insurance coverage is provided over time, such as for a year or six months. When a policy is canceled before its expiration, the insurer may refund the unearned premium to the policyholder for the period during which coverage will not be provided.

This concept is essential in insurance because it reflects the insurer's liability and is critical in determining what portion of funds are still owed to the insurer for the coverage period that has not yet elapsed. In contrast to other aspects of the question, such as the total amount of premium paid at policy initiation or the amount due from the policyholder, unearned premium focuses solely on the earnings cycle of the insurer with respect to the policy period.