Multiple Choice
All of the following statements are true regarding group insurance except:
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1. Introduction to Accounting
Types of Accounting
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When an insurance company needs to provide a payout, the money is removed from which of the following accounts?
A
Investment income account
B
Claims expense account
C
Unearned premium reserve
D
Premium revenue account
Verified step by step guidance1
Understand the nature of the accounts listed in the problem: The Claims Expense Account is used to record payouts for claims, the Unearned Premium Reserve represents premiums received but not yet earned, the Premium Revenue Account records earned premiums, and the Investment Income Account tracks income from investments.
Identify the purpose of the payout: When an insurance company provides a payout, it is typically related to claims made by policyholders.
Match the payout purpose to the correct account: Since payouts are directly related to claims, they are recorded in the Claims Expense Account, which tracks the expenses incurred due to claims.
Eliminate other options: The Unearned Premium Reserve is not used for payouts as it represents future obligations, the Premium Revenue Account is for earned premiums, and the Investment Income Account is unrelated to claims payouts.
Conclude that the Claims Expense Account is the correct account for recording payouts made by the insurance company.
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