Prepaid Insurance: Definition, How It Works, Benefits, and Example

when a business pays for insurance, prepaid insurance is

However, once the coverage period starts, an adjusting entry on December 31 will recognize $400 (one-sixth of $2,400) as an insurance expense, and an equivalent credit will be made to prepaid insurance. This results in a remaining prepaid when a business pays for insurance, prepaid insurance is insurance balance of $2,000, reflecting the unexpired coverage for the subsequent five months. The prepaid insurance amount is recorded as an asset on the balance sheet until it is gradually expensed over the coverage period.

Often, PPO premiums are slightly higher than HMOs, but you’re free to see almost any provider of your choosing without obtaining a referral from a primary care provider first. Granted, you’ll typically pay less for in-network rather than out-of-network providers, but the choice is yours. Again, most large insurance companies (e.g., Aetna, Anthem (Elevance Health in California and Nevada), Blue Cross Blue Shield, United Healthcare, etc.) offer PPO options. The answer is somewhat subjective, but for many, Long-Term Care Insurance presents an affordable means of safeguarding retirement savings and alleviating the burdens placed on their loved ones. Premiums are affected by various factors, such as age, health, family medical history, and the policy’s overall benefits. Long-Term Care Insurance policies are custom-designed, and premiums vary dramatically between insurance companies for the same benefits.


It may provide an extra layer of protection against unforeseen or high-cost incidents. The level of coverage will likely vary between insurers, so it is crucial that small business owners do their research and seek professional advice to ensure they make informed decisions. There are more than 500 trucks under the company’s assets, and all trucks are operational.

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  • As the insurance coverage period progresses and a portion of the prepaid insurance is utilized, an adjusting entry is required.
  • As the coverage progresses, an adjusting entry is made on December 31 to account for the consumed portion.
  • When an expense is paid in advance, the company will not have to pay it when it arises.
  • Most major carriers (e.g., Blue Cross Blue Shield, Cigna, etc.) offer some kind of HMO program.
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An LTC policy is custom-designed to pay a monthly or daily benefit, with a „pool of money“ that can grow over time with a selected inflation benefit. State Farm’s final expense policy is designed to cover burial expenses when you die (although beneficiaries can technically use the money for anything). State Farm’s burial insurance is available to buyers ages 50 to 80 (or 50 to 75 in New York) and pays a fixed $10,000 death benefit. Because State Farm Life is a mutual company, there’s the potential to earn dividends. Whole life insurance has fixed premiums that won’t change, but is generally one of the more expensive ways to buy life insurance.

Umbrella insurance

In this way, prepaid insurance has economic value, not unlike an investment in stocks or bonds, that can be redeemed at a later time. Prepaid insurance refers to premiums for insurance that are paid in advance. A premium is a regular, recurring payment made to a provider for the benefit of having insurance coverage. Prepaid insurance works similarly to many products or services you pay for fully in advance.