Which is the best measure of the amount of insurance provided for a given period?

Which is the best measure of the amount of insurance provided for a given period?

• A. Written premiums
• B. Earned premiums
• C. Incurred losses
• D. Net investment income

Answer: (B)

Earned premiums reflect the portion of premium that has been earned for the policy period, so they best measure the amount of insurance actually provided during that time. When a policy is written, the full premium may be collected upfront, but only part of it is earned in a given period as the risk coverage has been provided. The earned portion grows over time to match the coverage that has occurred. For example, a yearly premium of 1,200 earned evenly over the year would be 600 earned after six months, accurately mirroring the insurance protection that has been in place so far. Written premiums measure potential revenue over the entire term and include unearned portions, which don’t reflect current exposure. Incurred losses relate to claims that have occurred, not the amount of coverage in force, and net investment income is about investment results, not insurance protection.

Earned premiums reflect the portion of premium that has been earned for the policy period, so they best measure the amount of insurance actually provided during that time. When a policy is written, the full premium may be collected upfront, but only part of it is earned in a given period as the risk coverage has been provided. The earned portion grows over time to match the coverage that has occurred. For example, a yearly premium of 1,200 earned evenly over the year would be 600 earned after six months, accurately mirroring the insurance protection that has been in place so far. Written premiums measure potential revenue over the entire term and include unearned portions, which don’t reflect current exposure. Incurred losses relate to claims that have occurred, not the amount of coverage in force, and net investment income is about investment results, not insurance protection.