Advance Premium Fund
What Is an Advance Premium Fund?
An advance premium fund exists when insurance companies who receive advance premiums must account for the unearned portion of these premiums as a separate liability thing on their balance sheets. This thing is commonly alluded to as the advance premium fund or advance premium account.
When the premium is earned, it is run through the income statement. Insurance companies frequently collect advance premiums to tie a policy's coverage during the underwriting process when an insurance application is recorded, alongside a check for payment.
Advance premium accounting rules are completely regulated by the different states since it very well may be a large thing for more modest companies and is a direct offset to capital. A common method for computing unearned premiums is by customizing the premiums by the number of days inside the period.
How an Advance Premium Fund Works
In the insurance business, a advance premium is an initial premium paid to tie an insurance policy for a given period of time. The most commonly known utilization of the term "advance premium," is concerning fluctuating or variable insurance payments, for example, finance based policies, where the real amount due isn't known until sometime later. An advance premium can likewise allude to paid ahead of time premiums, where the policyholder makes a premium payment before it is due.
Since the advance premiums paid to an insurer are not yet earned (insurance coverage has not yet been written to compare with those premiums), those funds must be kept in a separate account from the organization's operating funds, and can't be considered earned income until the insurance coverage has been written. What's more, the genuine premium to be paid may contrast from the estimated advance premium. This accounting thing is commonly alluded to as the advance premium fund or account. As the premium is earned, it is run through the income statement.
The advance premium fund varies from an organization's insurance premium trust, which is a separate account that safeguards clients' premium funds from agency creditors or different petitioners. Any premium payment stored in an agency's trust bank account turns into a "guardian" fund subject to insurance code regulations.
Features
- In the insurance business, an advance premium is an initial premium paid to tie an insurance policy for a given period of time.
- An advance premium fund exists when insurance companies who receive advance premiums must account for the unearned portion of these premiums as a separate liability thing on their balance sheets.
- When the premium is earned, it is run through the income statement.
