Compensating Balances Plan

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DEFINITION of 'Compensating Balances Plan'

A type of premium paid by an insured business. Compensating balances plans allow firms to subtract various expenses from the premiums that they pay to their carriers. This allows the business to divert this portion of the premium to a separate account from which it can draw.

BREAKING DOWN 'Compensating Balances Plan'

Compensating balances plans allow insured firms to subtract costs like the cost of carrying the policy, premium taxes and profit from the premiums that they pay. This plan effectively lowers the cost of insurance for businesses. Firms can use the money diverted into their account for practically any reason they choose.

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RELATED FAQS
  1. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Full Answer >>
  2. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage age ... Read Full Answer >>
  3. What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

    While both debit orders and standard orders represent recurring transactions that must be considered in bank reconciliations, ... Read Full Answer >>
  4. How can a company execute a tax-free spin-off?

    The two commonly used methods for doing a tax-free spinoff are either to distribute shares of the spinoff company to existing ... Read Full Answer >>
  5. How often should a small business owner go through a bank reconciliation process?

    Small business owners should go through the bank reconciliation process at least monthly, and many business consultants recommend ... Read Full Answer >>
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    The marginal cost of production can be tracked to show the optimal production level where per-unit production cost is lowest ... Read Full Answer >>

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