Advance Premium

What Is an Advance Premium?

An advance premium is an initial premium paid to tie an insurance policy for a given period of time. The most ordinarily known utilization of the term "advance premium" is with respect to fluctuating insurance payments, for example, om payroll-based insurance policies, where the genuine amount due isn't known until sometime later.

An advance premium can likewise allude to paid ahead of time premiums, in which the policyholder makes a premium payment before it is due. At times, he gets a small discount for paying in advance.

Grasping an Advance Premium

Some insurance premiums are due in advance of coverage being extended, and the non-payment of the premium will bring about the cancellation of the policy. Insurance companies ascertain the premium down to the day and allot your premium due on that basis. You have likely seen that you pay somewhat more premium toward the beginning of your policy, and now and again don't have payments towards the finish of the policy term. By computing and collecting money in advance, the insurance company is saying it won't extend you any coverage prior to your genuine payment of the premium.

Now and again, the real premium to be paid may contrast from the estimated advance premium.

At the point when you purchase home insurance, you are protecting yourself from future claims that will cause you financial loss. Notwithstanding, the risk of loss is uncertain and insurance, somewhat, is a bet. If you somehow managed to pay insurance falling behind financially, for example, you do with your home mortgage payments, the insurance company would have extended coverage and possibly experienced a loss without you paying any premium. On the off chance that this practice were permitted, insurance companies would leave business since consumers would just pay premiums after they have experienced a loss and put in a claim.

Advance Premium Funds

With regards to accounting, insurance companies need to account for advance premiums in a special manner.

Since the advance premiums paid to an insurer are not yet earned (that is, insurance coverage has not yet been written yet to compare with those premiums), those funds must be kept in a separate account from the company's operating funds, and can't be considered earned income until the insurance coverage has been written.

In this way, advance premiums must be noted as a separate liability thing on an insurance company's balance sheet. They are listed in what is normally alluded to as the advance premium fund or account.

Advance Premiums and Automobile Insurance

On account of automobile insurance, insurers must collect an advance premium to give a type of backup to be utilized in case of a claim. Premiums are typically billed consistently, and every regularly scheduled payment is for coverage during the next month.

At one time, auto insurance policyholders could pay for accident protection for a long time or one year in advance. This required drivers to practice thinking ahead and budgeting to guarantee they had sufficient cash to foot that annual or semi-annual bill. As additional states began requiring their drivers to have accident protection, in any case, insurers started offering insurance policies with regularly scheduled payments.

One more benefit of advance month to month premium payments is that policyholders will know the due date of their vehicle insurance instead of waiting for the annual bill from their insurer. In such cases, a policyholder can set up computerized payments through a debit or credit card. Most insurance companies likewise have web entries; a policyholder can utilize them to check and pay regularly scheduled payments.

Features

• An advance premium is an initial premium paid to tie an insurance policy for a given period of time.
• An advance premium can likewise allude to paid ahead of time premiums, in which the policyholder makes a premium payment before it is due.