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.
John
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?
Bruce