What is minimum earned premium?

Minimum earned premium is a term used in insurance to refer to the minimum amount of premium that an insurer will earn for a policy, regardless of the duration of coverage. It is usually set as a fixed amount, or a percentage of the total premium for the policy.

In essence, the minimum earned premium is the amount of premium that the insurer keeps even if the policy is canceled before the end of the policy term. For example, if the minimum earned premium for a policy is $1,000 and the policy is canceled after three months, the insurer will keep the $1,000, even though the policyholder only used coverage for three months.

Minimum earned premium is commonly used in commercial insurance policies, where premiums are often based on estimated exposures or projections of future business activity. The minimum earned premium provides a level of security for the insurer, ensuring that they will earn a certain amount of premium even if the actual exposure or activity turns out to be lower than anticipated. It also reflects the insurer’s costs associated with underwriting and issuing the policy, as well as its risk of loss.