DEFINITION of 'Prepaid Insurance'

Payments that are made in advance for insurance services or coverage. The period for which insurance is prepaid is generally one year, but may exceed a year in certain cases. Prepaid insurance that expires in a year is classified as a current asset on a corporation's balance sheet.

BREAKING DOWN 'Prepaid Insurance'

Unless a claim has been made, prepaid insurance is usually renewable by the policy-holder shortly before the expiry date on the same terms and conditions as the original insurance contract. However, the premiums may be marginally higher to account for inflation and other operating factors.

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