Introduction
The insurance premium payments that are made in advance to avail insurance coverage over a certain duration is known as prepaid insurance. These are the policies that are not expired as per the balance sheet of the insurer.
What is Prepaid Insurance
Prepaid insurance policies are generally renewable before the expiry of the policies unless a claim has been made, and the policy terms and conditions would more or less be the same. They are applicable for both individuals and businesses.
Premiums are usually paid once a year and in advance. When an individual does not use the premium money paid during the year, the insurance company adds the sum into its balance sheet as a current asset. If the sum is used within the period, the expense is added into the insurance company's income statement as an expense.
Highlights of Prepaid Insurance
Typically, prepaid insurance policies are offered on a yearly basis.
The term of prepaid insurance can be more than a year in some cases.
The insurance premium and sum assured varies across insurers.
Premiums may be slightly higher when you renew the prepaid insurance policy, due to inflation and other factors.
