Advance Premium Fund
Categories: Insurance
It might be hard to believe that anyone would pay an insurance premium before it is due, but sometimes individuals want to take advantage of an extra tax deduction for the current year.
When an insurance company does receive an advance premium, it goes into a special fund or account. This must then be included on their balance sheet as a liability, since they still need to supply the insurance coverage.
So let’s say PayInAdvance, Inc. decides to pay their invoice for December on December 1, 2018. But they want to get an extra tax deduction for the year 2018, so they decide to pay the next quarter’s premium as well, covering January-March 2019. Their insurance company, WeTakeAnything, Inc. must prorate the payment and add the January-March amount to their advance premium fund.
