Using a Premium Trust Account

In an Insurance Agency, you should be using a Premium Trust Account to hold all your customer premium payments.  These should not be deposited into your normal agency checking account.

This is one reason why accounting for insurance agencies is different than normal accounting procedures for, say, a retail firm.  In a retail organization, customer payments are deposited directly into the normal business checking account, and those payments are considered income.  But insurance agency accounting requires that customer payments be held in trust. And only the commission earned on the premium payment is income.

There are two types of billing in insurance accounting – direct bill and agency bill.

Direct bill is when the insurance carrier directly bills the customer.  The customer then pays the carrier, and you the insurance agent receive your commission after the carrier gets paid from the client.

Agency bill means you the insurance agent invoice the customer, who then pays you, then you pay the carrier for the premium less your commission amount.  For example, if Specialty Brokerage sends you a premium invoice for a customer of $100 at 10% commission, here’s what you would do.

1. Invoice the customer for $100 premium.

2. Deposit the customer’s $100 check into your Premium Trust Account.

3. Send a check from your Trust account to Specialty Brokerage for $90 ($100 less 10% commission).

4. Transfer $10 commission from your Trust account to your regular checking account.


If you’re using an insurance agency software, like TAM (The Agency Manager) for instance, the journal entries for using the Trust Account are automatically posted for you.  You then have reports at your disposal like the Premium Trust Report, which lists all the client transactions that affect what must be kept in the account.

If you’re using QuickBooks, for instance, you will have to work around this.  You would have to invoice the customer for the whole premium.  Remember, you don’t want the customer to see the commission amount that you earn. So you’ll have to do separate journal entries to properly account for the receivable and the commission amount.

Journal entries for using a premium trust account


Invoice the customer:

Debit=Accounts Receivable…..$100

Credit=Commission Earned…………….$100

Then post this entry:

Debit=Commission Earned…..$ 90

Credit=Insurance Carrier Payable………$ 90

These two entries effectively post $100 into your Accounts Receivable, $90 into a liability account called Insurance Carrier Payable (the amount you owe the insurance carrier), and $10 into an asset account called Commissions Earned.  This Commissions Earned account is for recognizing the revenue you have earned but not yet received.

The customer pays you:

Debit=Premium Trust Account…..$100

Credit=Accounts Receivable……………….$100

This entry closes out the receivable as paid. You would then deposit the money into your Trust bank account.  Then you would pay the carrier, Specialty Brokerage the net amount of $90, keeping the $10 commission as your income for the sale.

You pay the carrier:

Debit=Insurance Carrier Payable….$ 90

Credit=Premium Trust Account…………….$ 90

Now you can move the commission amount to your regular checking account.

Debit=Agency Checking Account….$ 10

Credit=Premium Trust Account…………….. $ 10

Then recognize the funds received as income:

Debit=Commissions Earned………..$ 10

Credit=Commissions Income…………………$ 10

This is the proper way to account for the commissions received, but you could combine the two steps and just post the $10 commission to your revenue account in the ‘invoice the customer’ journal entry.  This would then eliminate the need for this last journal entry.

These are the steps for proper accounting for customer premium payments in insurance agency accounting.


I have over 10 years experience working with insurance accounting.  If you need any help, feel free to use the link below to send me an email.  After you click the link, scroll down the page to the contact link.

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