Prepaid Insurance

Definition

Prepaid insurance is a type of insurance that is paid for in advance of the coverage period. It is a form of risk management that allows businesses to pay for insurance coverage before the risk of loss occurs. The prepaid insurance is recorded as an asset on the balance sheet and is amortized over the coverage period.

Example

For example, a business may purchase a one-year insurance policy for $100,000. The business would record the prepaid insurance as an asset on the balance sheet and amortize the expense over the one-year coverage period.