Insurance claims are operating expenses. Accordingly, an insurance company's senior leaders ensure that policyholder claims are valid and complete. They also ensure that claim accounting procedures are adequate in the short term and long term.
Claim Defined
A claim is a document in which a policyholder requests reimbursement for expenses incurred after an adverse event. The event must be covered in the insurance policy.
Claim Recording by the Insurer
To record a new claim, an accountant at the insurance company debits the policyholder claim account and credits the claim payable account.
Claim Recording by the Policyholder
The policyholder filing a claim debits the claim receivable account and credits the repair expense account.
Claim Payment by the Insurer
To record a claim payment, the insurance firm's accountant debits the claim payable account (to bring it back to zero) and credits the cash account. In insurance accounting parlance, crediting an asset, such as cash, means reducing its balance.
Claim Payment Receipt by the Policyholder
To record a claim payment receipt, the policyholder debits the cash account and credits the claim receivable account. In insurance accounting terminology, debiting an asset means increasing its balance.
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