In insurance premium accounting the first accounting records are created when the policy premium is transacted. Assuming a $1,000 premium transaction and 10% commission rate two accounting records are necessary to start the policy premium management.

The first accounting transaction sets forth insuredís obligation to pay the producer agency $1,000 and insurance producerís authority to receive in a fiduciary capacity $1,000 from insured. The second accounting transaction sets forth insurance producerís fiduciary obligation to disburse $1,000, $900 net premium to insurance company and $100 commission to the agency operating account.

Accounting transactions are recorded in the trust ledger as the policy transacted premium is billed (invoiced) or received from insured, remitted to the insurance company or transferred to the operating account as commission income.

Premium accounting procedures have been developed for the following types of premium transactions:

  1. Policy Premium Transaction
  2. Down payment
  3. Installment Premium
  4. Installment Audit premium
  5. Final Premium Audit
  6. Interim Audit Premium
  7. Financed Premium, whether (a) received by producer agency, or (b) remitted directly to the carrier
  8. Endorsements AP or RP
  9. Short Payments, whether (a) billed separately or (b) collected with the next installment
  10. NSF Checks
  11. Return Premium Reimbursements (net premium and commission)
  12. Premium Refunds
  13. Premium Credit

Premium accounting procedures are computer coded. All accounting records are automatically created by computer for each policy. There is no account posting and no journal entries in premium trust accounting. Account balances are automatically calculated by computer for use in the Balance Sheet or Premium Float Statement. Audit trail reports are automatically generated for each of the 65 ledger accounts.

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