General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
An "unearned premium" is best defined as:
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
The unearned premium is the portion of the premium corresponding to the future period of coverage not yet provided. It is a liability of the insurer — if the policy is cancelled, the unearned portion is returned to the insured. As time passes and coverage is provided, unearned premium converts to earned premium. Tracking unearned premium is central to accounting and to calculating cancellation refunds.
Why the other options are wrong
- A) Premium covering protection already provided is the earned premium, not the unearned portion.
- C) The premium paid at issue is the initial premium; it is apportioned over time into earned and unearned.
- D) Late-payment penalties are a separate contract or statutory charge, not a premium classification.
Memory hook
Unearned = paid-for coverage still coming. Cancel early and the unused portion comes back.