Definition of Prepaid insurance:
The term prepaid insurance refers to payments that are made by individuals and businesses to their insurers in advance for insurance services or coverage. Premiums are normally paid a full year in advance, but in some cases, they may cover more than 12 months. When they aren't used up or expired, these payments show up on an insurance company's balance sheet. as a current asset.
A prepaid expense is an expenditure that a business or individual pays for before using it. Prepaid insurance is considered a prepaid expense. When someone purchases prepaid insurance, the contract generally covers a period of time in the future. For instance, many auto insurance companies operate under prepaid schedules, so insured parties pay their full premiums for a 12-month period before the coverage actually starts. The same applies to many medical insurance companies—they prefer being paid upfront before they begin coverage.
When a company pays insurance premiums for employees for the next year. This is record as an expense.
How to use Prepaid insurance in a sentence?
- Prepaid insurance is payments made to insurers in advance for insurance coverage.
- Policyholders can renew coverage shortly before the expiry date on the same terms and conditions as the original insurance contract.
- Insurance companies carry prepaid insurance as current assets on their balance sheets because it's not consumed.
- When the insurance coverage comes into effect, it goes from an asset and is charged to the expense side.
Meaning of Prepaid insurance & Prepaid insurance Definition