Multiple Choice
When buying an existing business, it is important to:
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1. Introduction to Accounting
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An insurance premium is:
A
The amount paid by a business to an insurance company to obtain insurance coverage for a specific period.
B
The amount received by a business from an insurance company after filing a claim.
C
The cash value of an insurance policy at the end of its term.
D
A liability recorded when an insurance policy is purchased on credit.
Verified step by step guidance1
Step 1: Understand the term 'insurance premium'. It refers to the amount paid by a business or individual to an insurance company in exchange for insurance coverage over a specific period.
Step 2: Analyze the options provided in the problem. The correct answer should align with the definition of an insurance premium.
Step 3: Eliminate incorrect options. For example, the amount received after filing a claim is not the premium; it is the claim settlement amount. Similarly, the cash value of an insurance policy at the end of its term is unrelated to the premium.
Step 4: Consider the option about liability recorded when an insurance policy is purchased on credit. While this may occur in accounting, it does not define the term 'insurance premium'.
Step 5: Select the option that matches the definition of an insurance premium: 'The amount paid by a business to an insurance company to obtain insurance coverage for a specific period.'
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