Tag: OU B.com free notes

A single-entry system records each accounting transaction with a single entry to the accounting records, rather than the more common double entry system. The single-entry system is centered on the results of a business that are reported in the income statement. The core information tracked in a single-entry system is cash disbursements and cash receipts. Asset and liability records are usually not tracked in a single-entry system; these items must be tracked separately. The primary form of record keeping in a single-entry system is the cash book, which is essentially an expanded form of a check register, with columns in which to record the particular sources and uses of cash, and room at the top and bottom of each page in which to show beginning and ending balances. An example of a cash book is:

Examples of Double Entry

1. Purchase of machine by cash

2. Payment of utility bills

3. Interest received on bank deposit account

4. Receipt of bank loan principal

5. Issue of ordinary shares for cash

Joint Venture Account:

This account represents the results of the business, that is, profit or loss. It is like a Trading/Profit & Loss Account of a trading concern. This account is debited by the cost of goods, expenses; goods supplied by the venturers etc. and are credited by sale proceeds, unsold stock, stock taken by venturers etc.

If credit side of this account is greater than the debit side, the difference represents profit on joint venture and vice versa in the opposite case. The profit or loss so made is transferred to co-venturer’s account.

It is like an ordinary Cash Book or Bank Account. All incomes including the capital contribution by the ventures appear on the debit side of this account whereas all expenses of the venture appear on the credit side of this account. It is finally closed by payment to the co-venturers, leaving no balance either side.

Co-Venturer’s Account:

This is the capital account of the venturer relating to venture. This account is credited by the capital contributed by the venturers, goods supplied by them from their own stock, expenses made personally by them etc. whereas this account is debited for any withdraw­als or any asset taken from the venture.

The profit or loss so made on venture is transferred to this account in profit sharing ratio and this account is closed by cash payment from joint bank and vice versa in the opposite case.

Under this method, all co-venturers contribute their share of investment and deposit their shares in a Joint Bank account newly opened for the specific purpose of the Joint Venture. They may use this bank account to make any kind of payments and to deposit sale proceeds or any other kind of receipts.

In addition to Bank account, a Joint venture account is also opened in the books to keep records of all transactions routed through this account.

This category of accounts is a personal account of each co-venturer. Thus, following three accounts are opened:

• Joint Bank Account
• Joint Venture Account
• Personal account of co-venturers

When Separate Books of Accounts are not kept for the Joint Venture

It is of two types:

• When all venturers keep separate accounts
• Memorandum joint venture method

When all Venturers keep Separate Accounts:

• Separate Joint venture account and personal accounts of other co-venturers are opened under this method of accounting.
• Joint venture account is debited and bank account or creditor account is credited on the account of goods purchased or expensed.
• Joint venture account is credited and a bank account or debtor account is debited in case of either cash sale or credit sale.
• Each co-venturer debits joint venture account and credits personal accounts of other co-venturer on the account of either goods purchased or expensed by other co-venturers.
• Joint venture account is credited and personal account of others co-venturer account is debited in case of sale made by other co-venturers.
• Joint venture account is debited and commission account is credited if, commission is receivable, but if commission is receivable by other co-venturer, then the concerned co-venturer account will be credited instead of the commission account.
• If unsold stock is taken, then goods account will be debited by crediting Joint venture account. On the other hand, if unsold stock is taken by any other co-venturer, then personal account of the co-venturer will be debited.
• Balance in the joint venture accounts represents profit or loss and later that amount of profit or loss will be transferred to the personal accounts of co-venturers.

Note: Above transactions are possible only when all the co-venturers exchange information’s on regular basis.

Memorandum Joint Venture Method

Important features of memorandum method are given as hereunder:

• Only one personal account is opened by each co-venturer in his book named Joint Venture account with…………… (Name of other co-venturer). Same process will be followed by other co-venturer in his books of accounts.
• Only one personal account will be opened by each co-venturer irrespective of the fact, how many other co-venturers are exists. For example, there is a joint venture of 4 person A,B,C, & D; now, A in his books will open only one personal account named as Joint venture with B,C, & D account.
• Each party will record only those transactions in his book, which are done by him; the transactions done by other co-venturers will be ignored.
• In addition to above said personal account, a combined account named as “memorandum joint venture account” will also be opened.
• Memorandum account is merely a combined account of personal accounts opened by each co-venturer. Debit side of personal account will be transferred to the memorandum account and the credit side of personal account will be transferred to the credit side of memorandum account.
• Transactions done by co-venturers among themselves including cash received or paid by one co-venturer to other will be ignored at the time of preparation of a memorandum account.
• Balance of memorandum joint venture account will represent profit or loss of the particular business. Further, the profit or loss will be transferred to the individual co-venturer account in their profit sharing ratio.

The drawer is the person who draws or makes the bill and sends it to the drawee or the payer for the acceptance. Once accepted, the bill becomes Bills Receivable for the drawer and Bills Payable for the drawee or payee.

The drawer may endorse the bill to another person who becomes the holder of the bill. On the due date, the holder presents the bill to the drawee for payment.

The payee is the person who eventually pays for the bill. Drawee will be the payee as well most of the time but sometimes a third party will pay the bill on behalf of the drawee then the third party will become the payee.

Journal Entries in the books of Drawer

Journal Entry for Bills of Exchange

Drawer’s Books

Drawee’s or the Payer’s Books

Holder/endorsee’s Books

The drawer may feel that the drawee may dishonor the bill. In this case, he can give it to the Notary Public. Notary Public presents the bill to the Drawer for payment instead of the Drawer. If the bill is honored, they hand over the money to the Drawer.

In case of dishonor, they note the reasons for dishonor and give the bill back to the drawer. They charge fees for this known as Noting charges. In case of dishonor, the person who is responsible for the dishonor bears the noting charges.

A Bill of Exchange is a written document which is duly stamped and signed by the drawer carrying an unconditional order which directs (not commands) a person to pay a specific amount to a particular person or to the order of the particular person or the holder of the instrument.

A bill of exchange is a written agreement between two parties the buyer and the seller used primarily in international trade. It is documentation that a purchasing party has agreed to pay a selling party a set sum at a predetermined time for delivered goods. The buyer or seller typically employs a bank to issue the bill of exchange due to the risks involved with international transactions. For this reason, bills of exchange are sometimes also referred to as bank drafts.

Bills of exchange can be transferred by endorsement, much like a check. They can also require the buyer to pay a third party a bank in the event that the buyer fails to make good on his agreement with the seller. With such a stipulation, the buyer’s bank will pay the seller’s bank, thereby completing the bill of exchange, then pursue its customer for repayment.

The following conditions need to be fulfilled:

• The bill should be properly dated.
• It must contain an order, i.e., the drawer of the instrument directs the drawee to pay a certain sum to the payee.
• Must be signed by the maker of the bill.
• The drawee must accept Bill.
• Order to pay money only as well as the amount should be definite.
• Delivering the bill to the payee is a must.

Promissory Note

A promissory note is a negotiable instrument, containing a written unconditional promise, duly stamped and signed by the drawer, to pay a specified sum of money to a particular person or the order of the particular person. It is made by the debtor to borrow money from the creditor.

Promissory notes are similar to bills of exchange in that they, too, are a financial instrument that is a written promise by one party to pay another party. They are debt notes that provide financing for either a company or an individual from a source other than a traditional lender, most commonly one of the parties in a sales transaction.

The features of a promissory note are as under:

• The note must be in writing carrying written promise to pay money to the creditor.
• Signature of the promisor i.e. drawer of the note must be there.
• The date on which the note is payable should be fixed.
• Both the promisor and promisee needs to be certain.
• The sum of money must be definite.
• The country’s legal currency should be used to discharge the debt.

Honor of Bill

An acceptor for honor binds himself to all parties subsequent to the party for whose honor he accepts to pay the amount of the bill if the drawee does not; and such party and all prior parties are liable in their respective capacities to compensate the acceptor for honor for all loss or damage sustained by him in consequence of such acceptance.

But an acceptor for honor is not liable to the holder of the bill unless it is presented, or (in case the address given by such acceptor on the bills is a place other than the place where the bill is made payable) forwarded for presentment, not later than the day next after the day of its maturity.

When the drawee (a person who is liable to pay) is not able to make the payment on the date of maturity of a bill, a bill is said to be dishonoured. In this situation liability of drawee is restored. Dishonour of a bill can be either by non-acceptance or non-payment. A dishonoured bill is equivalent to the bounced cheque.

Bill of exchange requires acceptance by the drawee when it is presented, however, if on presenting the bill of exchange, it gets non-acceptance, it will amount to dishonour.

Dishonour by Non-Payment

When the drawee of the bill of exchange commit default in making the payment of the bill on maturity to the drawer, it is said to be dishonoured of a bill of exchange by non-payment.

Possible reasons why the bill is dishonoured by non-payment?

• Due to insufficient funds in the drawee’s a/c.
• The drawee is unable to pay because of insolvency, or
• The drawee simply does not want to pay

When the bill gets dishonoured, entries that were made at the time of receipt of a bill are reversed.

A Bills of Exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, all the order of the certain person or to the bearer of the instrument. Let us see about the renewal of bills of exchange.

When a person sells some good to a party, then he /she wants to take some written assurance that payment will be received within a specified period. Various type of negotiable instrument admit for this purpose, but the most commonly used instruments are bills of exchange.

Renewal of Bills of Exchange

Bills of exchange have some specified time period. Drawee/acceptor has to make payments within that specified time period to Drawer/maker. But sometimes when they are not able to pay for the bill on the due date then he/she may ask the drawer to extend the period of credit.

If the drawer agrees then the drawer may cancel the old bill and draw a fresh bill for the extended period which the acceptor accepts. Cancelling the old bill and drawing of a fresh bill for an extended period is called Renewal of Bill. For the extended period, drawee is asked to pay interest which can be paid in cash or added to the amount of a new bill.

How to make entry of Renewal of Bills of Exchange

As when a new bill of exchange is issued, it affects both parties. Entry for renewal is passed in the books of the drawer as well as acceptor. If the drawer has discounted or dishonoured bill, the same entries are made as for dishonour.

Thereafter second entry is passed for interest. Interest may be paid in cash by cheque. If interest is paid in cash, then drawer debits the cash a/c and credits the interest a/c. If interest is paid by cheque then drawer debits the bank a/c and credits interest a/c.

On the other hand, acceptor debits the interest and credits the cash or bank a/c. For drawer, interest is the income and for acceptor, interest is an expense. Cash or cheque is received by the drawer and is paid by the acceptor.

If the acceptor does not pay interest on cash but agreed to pay later then instead of debiting cash/bank, drawer debits the amount of the acceptor. Whereas acceptor credits the amount of drawer instead of cash/bank.

Because of the amount of interest drawer becomes the creditor and acceptor becomes the debtor. Interest is debited and credited in the same way whether paid in cash or not. A third entry is for renewal of the bill. Is dentist has been paid in the case then the bill of an amount of the new bill will be same as that of the old bill. If interest is not paid in cash then a new bill will include the old bill amount and interest.

Renewal in case of Partial Payment

If acceptor is unable to pay for the bill in full, he/she can also pay partially. In this case, a new bill will be for the remaining amount. Interest will then be charged on the remaining amount for the extended period of credit. The amount of the new bill will include unpaid amount, interest and nothing charges if any.

First main entry is made to cancel the old bill. A second entry is made for partial payment. The third entry is made for interest. And the fourth entry is for drawing and accepting the new bill.

Renewal in case of Dishonour of a Bill

Sometimes bill can be renewed by the drawer even after dishonour of bill. In this case, the acceptor is the debtor of the drawer for the amount of bill, noting charges and interest. If interest and noting charges or paid in cash by the acceptor, the drawer debits cash/bank and credits the interest and noting charges a/c.

On the other hand, acceptor debits the noting charges and interest a/c and credits the cash/ bank a/c. If these amounts are paid in cash, a fresh bill is drawn by the total of old bill amount, interest and noting charges.

Following entries are passed in this case:

In the book of Drawer

1] Entry for Cancellation of the Bill:

Acceptor’s Personal A/c………………. Dr

To Bills Receivable A/c

2] Entry for Receipt of Cash:

Cash A/c ……………………………………….Dr

To Acceptor’s Personal A/c

3] Entry for Interest Received:

Cash A/c  ……………………………………….Dr

To Interest A/c

4] Entry for Interest not yet received but due:

Acceptor’s personal A/c ……………………Dr

To Interest A/c

5] Entry for New Acceptance:

Bills Receivable A/c ………………………….Dr

To Acceptor’s Personal A/c

In the books of Acceptor

1] Entry for Cancellation of Bill:

Bills Payable A/c …………………………….. Dr

To Drawer Personal A/c

2] Entry for part payment in cash:

Drawer’s Personal A/c………………………………… Dr

To Cash A/c

3] Entry for Interest Paid:

Interest A/c …………………………………………. Dr

To Cash A/c

4] Interest not paid:

Interest A/c …………………………………………. Dr

To Drawer’s Personal A/c

5] Entry for Accepting New Bill:

Drawer’s Personal A/c ……………………………. Dr

To Bills Payable A/c

The act of drawee to withdrew the bill from circulation by making the payment of the bill before its maturity is called retiring a bill of exchange.

Sometimes the acceptor of a bill of exchange desires to meet the bill before its maturity if he has sufficient funds at his disposal. He may ask the holder of the bill to accept the payment before the due date. If the holder agrees to his proposal (obviously he welcomes it), he will withdraw the bill. Such a withdrawal is called “retirement of a bill of exchange”. The holder generally allows the acceptor a rebate or discount for the unexpired period of the bill. This rebate is discount is an expense for the holder and a revenue for the acceptor of the bill. The accounting treatment is similar to cash discount.

Rebate

It is concession or discount allowed by holder of the bill to the drawee for making payment of the bill before maturity. It is an expense for the holder and revenue for the drawee. Rebate is considered “Discount Allowed” from holder’s point of view and “Discount Received” from drawee’s point of view.

Journal Entries:

When a bill of exchange is retired by an acceptor, the following entry is made in books of the holder:

Cash A/C……………….Dr.    (with actual amount of cash received)
Rebate A/C…………….Dr.    (amount of rebate allowed)
     Bill receivable A/C          (full amount of bill)

In the books of acceptor, the following entry is passed:

Bill payable A/C………..Dr.    (with full amount)
     Cash A/C                      (amount actually paid) 
     Rebate A/C                   (rebate earned)

Computerized accounting systems are software programs that are stored on a company’s computer, network server, or remotely accessed via the Internet.  A firm prepares various reports with the help of it.

Hence, it also helps to analyze the company’s operations, efficiency, and profitability. Most importantly, firms prepare its reports as per Generally Accepted Accounting Principles (GAAP) under this system.

Features of Computerised Accounting System

1. Very neat and accurate work
2. Need for less clerical work
3. Cost and time efficient
4. Less possibility of errors and omissions
5. Generated real-time comprehensive MIS reports

Requirements of Computerized Accounting System

1. Operating Framework

It is a well-defined operating procedure made according to the operating environment of the organization.

2. Accounting Framework

It consists of Principles, grouping and coding structures of accounting.

Advantages of Computerized Accounting System

1. The accounts prepared with the use of computers are usually uniform, neat, accurate, and more legible than a manual job.
2. Computers bring speed and accuracy in preparing the records and accounts and thus, increases the efficiency of employees. Hence, time is saved.
3. Also, greater control is possible and more information may be available with the use of computers in accounting.
4. Computerized accounting reduces the monotony of doing repetitive accounting jobs, which are tiresome and time-consuming
5. Using accounting software it becomes much easier for different individuals to access accounting data outside of the office, securely. This is particularly true if an online accounting solution is being used.
6. The financial statements prepared by computers are highly reliable because the calculations are so accurate.
7. Using accounting software, the entire process of preparing accounts becomes faster.
8. Also, the data record is secure under this system.

Disadvantages of Computerized Accounting System

1. The effectiveness of the data output completely depends on the information input. Hence, if the input is incomplete or incorrect then it will lose effectiveness.
2. Biased or incompetent employees may affect the data.
3. Virtually every aspect of a computerized accounting system is costly. Hence, the expenses of the company increase.
4. Computerized accounting systems are vulnerable to cybersecurity issues. Hence, Cloud-based systems store your company’s information remotely, where it can be hacked.
5. Excess is anything is dangerous. Similarly, excess use of computers can affect the health of the operator.

Types of Accounting Softwares

1. Ready-to-use Softwares

Firstly, this kind of software is suitable for small businesses in which there are very less accounting transactions. The cost of the software is very low. Hence, the expenses of the firm will not increase.

The user base too is very less. Such software is prone to risks as it is less secure. There is no need for special training for using the software. It may not comply with other information systems.

2. Customized Softwares

Sometimes the software is customized to meet the special requirement of the user. It happens when general software is not helpful. It is suitable for medium and large businesses.

Hence, a firm can use it with many Information Systems. Cost of the software is relatively high. It includes modification and addition to the basic software.

Unlike ready-to-use software, it is more secure. Training cost is relatively high. Hence, the expenses of the firm will increase.

3. Tailored Softwares

This software is suitable for Large organizations having various divisions. It is helpful when the user base is geographically scattered. In contrast, its cost is very high.

Special training is necessary to use this software. Hence, the expenses of the firm will increase. It is highly secure.

Special Features of Computerized Accounting System:

1. It leads to quick preparation of accounts and makes available the accounting statements and records on time.
2. It ensures control over accounting work and records.
3. Errors and mistakes would be at minimum in computerized accounting.
4. Maintenance of uniform accounting statements and records is possible.
5. Easy access and reference of accounting information is possible.
6. Flexibility in maintaining accounts is possible.
7. It involves less clerical work and is very neat and more accurate.
8. It adapts to the current and future needs of the business.
9. It generates real-time comprehensive MIS reports and ensures access to complete and critical information instantly.

Requirements of the Computerized Accounting System:

Accounting Framework:

A good accounting framework in terms of accounting principles, coding and grouping structure is a pre-condition. It is the application environment of the computer­ized accounting system.

Operating Procedure:

A well-conceived and designed operating procedure blended with suitable operating environment is necessary to work with the computerized accounting system. The computer accounting is one of the database-oriented applications, wherein the transaction data is stored in well-organized database.

The user operates on such database using the required interface. And he takes the required reports by suitable transformations of stored data into information. Hence, it includes all the basic requirements of any database-oriented application in computers.

Problems Faced in Computerized Accounting System:

1. User Training:

The user, for using computer accounting software, needs to understand the concepts of the software. Hence, he should undergo proper training. A computer operator must learn the basics of computer, concepts of software, working with the operating system software [such as Windows/DOS] and the accounting software.

2. System Dependency:

Using a computer solution makes the user to depend fully on the com­puter system and necessitates the availability of computer at all times. If the system is not available [due to hardware failure or power cut], it would be difficult to verify the accounts.

3. Hardware Requirements:

A full-fledged computer system with a printer is required to operate the computerized accounting system. Most small organizations may not afford to have such facility with necessary software.

4. System Failure:

When there is a system crash [hard disk crash], there is high risk of losing the data available on the hard disk drive at any point of time. It would be highly painful, if the problem occurs at end of the financial year, when the financial statements should be ready.

5. Backups and Prints:

Backups of the data should be done regularly so that, when the data is lost, it can be restored from floppies [backups]. Regular print outs of the system information would be useful as manual records.

6. Voucher Management:

Accounting software allows easy alteration of data. If a voucher is wrongly placed in a wrong head, it would be very difficult to sort out and bring back the voucher. A good voucher management is very essential.

7. Security:

Additional security has to be provided because improper handling of the system [hardware/software] could be dangerous. Passwords, locks, etc., have to be set so that no unauthor­ized person can handle the system.

An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter.

A person or entity who buys insurance is known as an insured or as a policyholder. The insurance transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer’s promise to compensate the insured in the event of a covered loss. The loss may or may not be financial, but it must be reducible to financial terms, and usually involves something in which the insured has an insurable interest established by ownership, possession, or pre-existing relationship.

The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insurer will compensate the insured. The amount of money charged by the insurer to the policyholder for the coverage set forth in the insurance policy is called the premium. If the insured experiences a loss which is potentially covered by the insurance policy, the insured submits a claim to the insurer for processing by a claims adjuster. The insurer may hedge its own risk by taking out reinsurance, whereby another insurance company agrees to carry some of the risks, especially if the primary insurer deems the risk too large for it to carry.

Salvage

There is difference between salvage value and scrap value. Suppose your car damaged from front. Damage occur to Bonnet, radiator and bumper. your insurer will pay for replacement of these items with new. Now these damage items have some value in market. Say a damaged radiator will fetch 400 in market and can be used for resale. So, this is salvage value of Radiator. But If Radiator is fully damaged by crushing it, it will lose its usability and fetch value of say 100. This is scrap value.

Same occur with fully damage cars. When cars damage occurs beyond repair. Settlement is done on net of salvage basis. These cars sold to salvage buyers with good value as they sell saved parts of car at value. But when these cars crushed so make it unusable then sold on scrap basis. Then value is as per old metal prices in market.

This is concept in India, where old things are recirculated and not might fit for insurance industry in developed countries.

Abandonment and salvage is a term that can surface fairly frequently in insurance contracts. When such a clause is present, it indicates that the insurer has the ability to rightfully claim an insured asset or piece of property that has been destroyed and subsequently abandoned by its owners.

For the insurer to salvage the item, the owner must first express an intent of abandonment in writing. Once that process is complete, the insurance company could choose to take full possession of the damaged property after paying out its insured value to the policyholder.

The selling value of the property can surpass the amount paid out on the claim, so salvage rights are sometimes legally contested by several parties.

Insurance Policy

In insurance, the insurance policy is a contract (generally a standard form contract) between the insurer and the policyholder, which determines the claims which the insurer is legally required to pay. In exchange for an initial payment, known as the premium, the insurer promises to pay for loss caused by perils covered under the policy language.

Insurance contracts are designed to meet specific needs and thus have many features not found in many other types of contracts. Since insurance policies are standard forms, they feature boilerplate language which is similar across a wide variety of different types of insurance policies

Sum Assured

The sum assured is the guaranteed amount that the beneficiary of your life insurance policy will receive in case of your death. The sum assured is also known as the coverage or the cover of your insurance policy.

There are many different ways to calculate the sum assured for your life insurance policy. One of the most popular methods is Human Life Value or HLV. This method calculates sum assured based on your current and future expenses, present and future earnings, and age.

It helps you calculate your capitalized value based on current inflation. You can now find Human Life Value calculators online to know your HLV and select the right sum assured.

Sum insured, on the other hand, refers to the payable amount in case of an unforeseen event such as a medical emergency. It is a monetary benefit, unlike sum assured which is a maturity benefit.

Non-life insurance policies like motor insurance or health insurance provide protection as the sum insured. In short, it is the compensation payable to the policyholder in case of an injury/hospitalization or damage based on the concept of indemnity.

Under Insurance

Condition of average (also called underinsurance in the U.S., or principle of average, subject to average, or pro rata condition of average in Commonwealth countries) is the insurance term used when calculating a payout against a claim where the policy undervalues the sum insured. In the event of partial loss, the amount paid against a claim will be in the same proportion as the value of the underinsurance.

Payout = Claim *(Sum Insured / Current Value)

Average Clause

This means that in case of loss the insured has to bear a part of the loss. The insurer will only bear rateable proportion of the loss. In other words, for the difference between the actual value of subject matter and the amount for which it is insured, the insured has to be his own insurer.

Ex.

Suppose a property worth Rs. 2,00,000 is insured for Rs. 1,50,000 and the fire policy contains the average clause. Now, if half the property is destroyed by fire, the insurer will pay only Rs. 75,000 which is calculated as per the following formula.

Insured amount (Rs.1,50,000) x Actual loss (Rs. 1,00,000) / Actual value of the property (Rs.2,00,000)

If three-fourths of the property is destroyed by fire, the insurer will pay Rs. 1,12,500. The entire amount of policy will become payable only when entire property is destroyed by fire.

Claim

An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim (or denies the claim). If it is approved, the insurance company will issue payment to the insured or an approved interested party on behalf of the insured.

Insurance claims cover everything from death benefits on life insurance policies to routine and comprehensive medical exams. In some cases, a third-party is able to file claims on behalf of the insured person. However, in the majority of cases, only the persons listed on the policy is entitled to claim payments.

A paid insurance claim serves to indemnify a policyholder against financial loss. An individual or group pays premiums as consideration for the completion of an insurance contract between the insured party and an insurance carrier. The most common insurance claims involve costs for medical goods and services, physical damage, loss of life, and liability for the ownership of dwellings (homeowners, landlords, and renters) and liability resulting from the operation of automobiles.

For property and causality insurance policies, regardless of the scope of an accident or who was at fault, the number of insurance claims you file has a direct impact on the rate you pay to gain coverage (typically through installment payments called insurance premiums). The greater the number of claims that are filed by a policyholder, the greater the likelihood of a rate hike. In some cases, it’s possible if you file too many claims that the insurance company may decide to deny you coverage.

Types of Insurance Claims

Health Insurance Claims

Costs for surgical procedures or inpatient hospital stays remain prohibitively expensive. Individual or group health policies indemnify patients against financial burdens that may otherwise cause crippling financial damage. Health insurance claims filed with carriers by providers on behalf of policyholders require little effort from patients; the majority of medical are adjudicated electronically.

Policyholders must file paper claims when medical providers do not participate in electronic transmittals but charges result from rendered covered services. Ultimately, an insurance claim protects an individual from the prospect of large financial burdens resulting from an accident or illness.

Property and Casualty Claims

A house is typically one of the largest assets an individual will purchase in their lifetime. A claim filed for damage from covered perils is initially routed via the Internet to a representative of an insurer, commonly referred to as an agent or claims adjuster.

Unlike health insurance claims, the onus is on the policyholder to report damage of a deeded property they own. An adjuster, depending on the type of claim, inspects and assesses damage to property for payment to the insured. Upon verification of the damage, the adjuster initiates the process of compensating or reimbursing the insured.

Life Insurance Claims

Life insurance claims require the submission of a claim form, a death certificate, and oftentimes the original policy. The process, especially for large face value policies, may require in-depth examination by the carrier to ensure that the death of the insured did not fall under a contract exclusion, such as suicide (usually excluded for the first few years after policy inception) or death resulting from a criminal act.