Insurance Topic
Unearned Premium Refund
An unearned premium refund returns the appropriate portion of paid insurance premium attributable to unused coverage time after a policy ends before its term expires. The calculation and timing depend on applicable law and policy provisions.
Definition
Unearned premium is the portion of written premium attributable to the unexpired or unused part of a policy period. A refund arises when applicable law and contract terms require that amount to be returned after cancellation or termination. It is separate from an insurance claim payment.
Structural Components
- Written premium and the policy term establish the amount and period being evaluated.
- Earned premium corresponds to the portion allocated to elapsed coverage.
- Unearned premium corresponds to the remaining unused period, subject to the governing calculation.
- The effective termination date and any applicable adjustments affect the refund amount and deadline.
Parameters and Conditions
- Texas Insurance Code §558.002 applies to policies requiring an unearned premium reserve and requires the appropriate portion to be refunded when the policy ends early and a reserve remains.
- For personal automobile and residential property insurance, §558.002(d) sets a deadline no later than the 15th business day after the effective cancellation or termination date.
- The chapter defines business day to exclude Saturdays, Sundays and Texas-recognized holidays.
- A pro-rata example divides unused days by term days and multiplies by premium; that illustration does not determine every policy’s actual refund.
Topic Relationships
Exceptions, Limitations, and Boundaries
- Separate provisions apply to guaranty association refunds and premium-finance arrangements.
- A refund is not necessarily the entire amount originally paid; earned premium and applicable adjustments require separate treatment.
- The amount is not a claim settlement, a credit guaranteeing replacement coverage or an extension of the canceled policy.
- Different jurisdictions and policy types may have different rules.