An insurance premium refers to the amount paid by the insured when purchasing an insurance plan. An insurance plan is a valid contract between the insurer and the policyholder which entails a consideration to be paid. The consideration component in an insurance plan is also called insurance premium which could be paid monthly, quarterly, half-yearly, or yearly, or even lump-sum payment depending on the specific policy terms.
Let us go through the journal entry for insurance premium to understand it better.
Journal entry – insurance premium
The basic journal entry for insurance premium paid is
Debit: Insurance expense
Business Insurance Premium
For instance, a business that owns vehicles will have insurance cover for those. Accordingly, the journal entry will be
Debit: Vehicle expense
However, all insurance premium is not deducted as a business expense.
Personal Insurance Premium
The personal insurance premium paid is not a business expense so should not form part of the Balance Sheet. If the personal insurance premium is paid by the business on behalf of the owner, then the journal entry is
When the owner repays the amount back to the business, the entry would be
If the owner of a business makes insurance premium payment from his personal account, then there is no journal entry required in the company books.
Points to Consider:
Journal Entry for recording insurance premium varies depending on the type of expense incurred.