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Associate In Insurance (AINS) 21 Practice Exam

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On January 1, 2005, the xyz insurance company issued a policy with a one year policy period. The premium was 1,200. What was the unearned premium as of May 1, 2005?
Correct Answer:
800
Explanation:
Unearned premium is the portion of the premium that has not yet been earned by the insurer and remains as a liability until the policy term passes. For a one-year policy with level premium, the premium is earned evenly each month. From January 1 to May 1, four months have elapsed, so earned premium is 4/12 of 1,200 = 400. The remaining 8/12 of the premium is unearned: 1,200 − 400 = 800. So, the unearned premium as of May 1 is 800.

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