Insurance expense is considered an operating expense (or overhead cost) on the income statement, representing the portion of insurance premiums that have expired or been "used up" during an accounting period. It is a necessary cost to protect business assets, such as property, liability, or employee health, and is generally tax-deductible.
Insurance Expense is part of operating expenses in the income statement. The amount paid to acquire a specific coverage is known as "premium". Insurance agreements last for a certain period of time. Only the expired portion of the premium should be presented as "Insurance Expense".
Common categories include:
A insurance expense is devoted as a decrease in revenue under the equity account. Then if it's a cash payment, it would be credited and shown as a decrease in cash under the asset account.
The payment made by the company is listed as an expense for the accounting period. If the insurance is used to cover production and operation, then the insurance expense can be listed in an overhead cost pool and divided into each unit produced during the period.
How to categorize insurance expenses. Record as an Operating Expense on your income statement. Classify under Indirect Costs or Overhead Expenses. Use a “Business Insurance” or “Insurance Expense” account in your chart of accounts.
Business Insurance Expense Category
Business insurance expenses typically fall under the category of insurance expenses. Insurance expenses are generally classified as operating expenses. These are the ongoing costs a business incurs to run its daily operations.
A basic insurance journal entry is Debit: Insurance Expense, Credit: Bank for payments to an insurance company for business insurance. Not all insurance payments (premiums) are deductible* business expenses. Some insurance payments can go on to the Profit and Loss Report and some must go on the Balance Sheet.
Insurance is considered an operating expense because it's a recurring cost required to protect the business and maintain normal operations. Whether it covers property, employees, or liability, insurance helps safeguard business assets and continuity, making it an essential part of overhead costs.
Here we outline the three types of expenses you will find when creating your budget.
Insurance is broadly classified into Life Insurance and General Insurance, each catering to different types of risks and needs. These categories are further subdivided into specialized types to address specific situations and requirements.
Yes – most business insurance policies are classed as a tax-deductible expense.
Operating expenses consist of the cost of sales, fulfillment, marketing, technology and content, general and administrative, and others. Non-operating expenses comprise interest expense (and income), and other expenses (income).
Fixed expense examples
Insurance premiums (auto, home, renters, health, dental, life, etc.) Subscriptions and memberships (streaming services, meal kits, fitness memberships, etc.) Property/school taxes. Tuition and/or childcare costs.
The amount of the insurance premiums that remain prepaid at the end of each accounting period are reported in the current asset account, Prepaid Insurance. The balance in this account will be combined with the balances in other prepaid expense accounts and will be listed on the balance sheet as prepaid expenses.
When categorizing this expense, consider the following options:
Example of Insurance Expense
Let's assume that a retailer has insurance policies for its property, general liability, vehicles, and employees' worker compensation, medical, dental, life, and disability. The company pays the premiums on the various insurance policies in advance.
Accounting mainly consists of accrued, fixed, non-operating, operating, prepaid, and variable expenses. Each classification describes different types of costs incurred by a business in the course of its operations and financial activities, and each of these categories has a unique nature affecting different accounts.
List all your expenses. Then, list all your monthly expenses. This includes needs, like your electricity bill and groceries; wants, like streaming TV subscriptions and take-out; and even planned savings, like monthly contributions to your 401(k) or emergency fund.