What is the Full Form of EP in Insurance?
The Full Form of EP in insurance is Earned Premium. It is the part of the policy’s premium that might apply to the expired part of the policy. Though the insurance premiums are generally paid in advance, the insurers can earn the premium at an even rate throughout the term of the policy. However, the unearned portion of the premium that has been paid is kept under the unearned premium reserve.
Significance of Earned Premiums:
Earned premiums are the portion of premium income that corresponds to the lapsed portion of the policy period. This is critical for accurately portraying the insurer’s revenue during a certain period. Earned premiums are used to evaluate an insurer’s financial success. They provide a more complete picture of the company’s revenue from its primary underwriting activities, allowing for more accurate profitability assessments.
Earned Premium vs. Unearned Premiums:
Earned premiums are those that are paid in advance and belong to the insurer, but unearned premiums are not. These are premiums received in advance by insurance firms and must be returned to policyholders if coverage is stopped before the premium-covered period ends.