Prepaid Insurance

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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RELATED FAQS
  1. Does working capital include prepaid expenses?

    Discover how prepaid expenses can be classified as short-term assets included in the calculations for determining working ... Read Answer >>
  2. Who benefits the most from prepaid expenses?

    Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ... Read Answer >>
  3. What transactions cannot be made using prepaid credit cards?

    Find out about the transactions that are restricted when you use a prepaid credit card, and find out about other ways to ... Read Answer >>
  4. How are prepaid expenses recorded on an income statement?

    Understand how prepaid expenses are recorded on a company's financial statements. Learn why a prepaid expense would be considered ... Read Answer >>
  5. Do prepayments provide working capital?

    Learn how prepayments for various services such as insurance, rent and supplies are included as part of a company's current ... Read Answer >>
  6. What are the differences between deferred expenses and prepaid expenses?

    Learn the difference between prepaid expense and deferred expense and how businesses use and record each in standard accounting ... Read Answer >>
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