Unused Premium

Course: Insurance Planning
Lesson 8: Gift and Estate Valuation

Student Question:

Could you please clarify for me what the unused premium would be in term life insurance?  I don’t quite understand how you could not use the premium.  Thanks.


Instructor Response:

Hey John-

Certainly.   A lot of different terms in insurance, to be sure.

Assume you pay $6,000 in annual prepaid premiums on January 1, 2019, for coverage for the 12 months ending 12/31/2019.

You cancel the policy effective 5/31/2019.  The insurance company has earned premiums from 1/1/19 – 5/31/19.  They have not earned premiums for the remaining 7 months of the year.  They owe you $3500 calculated as 7 months x $500 cost per month.

Does that help to clarify?