If the vessel suffers a total loss, how is the premium treated?

If the vessel suffers a total loss, how is the premium treated?

• A. Unearned premium is returned
• B. Only a portion is earned
• C. The full annual premium is earned
• D. Premium is canceled with no refund

Answer: (C)

Premiums are earned as the insurer carries the risk during the policy period. If the vessel suffers a total loss, the insurer has provided coverage up to the moment of loss, and the contract is treated as having earned the full annual premium. In this scenario, there’s no refund of unearned premium because the insurer has paid for the risk of the entire term, even though the insured interest is destroyed. (Note: refunds of unearned premium can occur if a policy is canceled mid-term, but that doesn’t apply to a total loss situation presented here.)

Premiums are earned as the insurer carries the risk during the policy period. If the vessel suffers a total loss, the insurer has provided coverage up to the moment of loss, and the contract is treated as having earned the full annual premium. In this scenario, there’s no refund of unearned premium because the insurer has paid for the risk of the entire term, even though the insured interest is destroyed. (Note: refunds of unearned premium can occur if a policy is canceled mid-term, but that doesn’t apply to a total loss situation presented here.)