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What is Prepaid Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Prepaid insurance is a type of insurance coverage in which the insured party tenders payment for those services prior to actually receiving any of the services connected with that coverage. Once the payment, made in advance, is applied to the insured party’s account, the policyholder has full use of those services during the period of time covered by the payment, less any deductibles of co-pays that may be due according the terms and conditions of the insurance coverage. This particular model is common with many types of insurance, including health coverage and car insurance.

With insurance services that are structured as prepaid insurance, the policyholder tenders payments as a means of obtaining coverage that applies to an upcoming time frame. For example, if the holder of an auto insurance policy pays six months of premiums in advance, the coverage is in force until those six months expire. Should the insured party be involved in an auto accident at any time during that period, the insurance provider will process any claims submitted in connection with that accident. Assuming that the circumstances of the accident are covered in the terms and conditions, the provider will approve and remit payments to the policyholder or to any entity designated to receive those payments based on the terms of the insurance contract.

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In like manner, prepaid insurance in the form of health coverage is typically paid in advance. While some health providers do accept payments covering longer periods of time, it is customary for payments to be remitted on a monthly basis. Since the payments always cover an upcoming period rather than one that has just passed, the insured party can make use of the coverage to offset the expenses of any type of covered medical treatment. Typically, claims are submitted by the entity providing the treatments, and payments are tendered directly to those entities, with the insurance provider preparing and forwarding a detailed report of the claim activity to the insured party. There are also some prepaid insurance policies that tender payments directly to the policyholder, leaving the responsibility to settle the balances due with the healthcare providers personally.

Along with personal examples of prepaid insurance, many corporations and business professionals carry some type of prepaid coverage that may be paid for as much as a year in advance. Medical professionals often carry malpractice insurance that is paid on an annual basis and covers the upcoming calendar year. Corporations may carry liability coverage that protects the business from lawsuits and similar issues, with that protection paid for in advance. From this perspective, prepaid insurance is an investment in the future, allowing the individual or corporation to proceed with reduced fears of experiencing specific obstacles that would threaten to undermine well being if the coverage were not in place.

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