ADVANCE PREMIUM FUND

Insurance companies who receive advance premiums must account for the unearned portion of these premiums as a separate liablity item on their balance sheets. This item is commonly referred to as the advance premium fund or account. As the premium is earned, it is run through the income statement.

Advance premium accounting rules are strictly regulated by the various states, since it can be a large item for smaller companies and is a direct offset to capital. A common way to calculate unearned premiums is by prorating the premiums by the number of days within the period.