The process of insurance involves different transactions between the insured, insurer, brokers, and reinsurer. Depending on the parties involved, credit and debit notes are shuffled back and forth to indicate transactions. Also, as any one of the parties, it is necessary that you understand the importance of these notes, and where they are applicable. This article talks about debit notes and credit notes in insurance, bringing to you everything that you should know.
What are debit notes and credit notes in insurance?
Debit notes and credit notes are very important in insurance transactions. The notes are generated by one entity for another, and indicates a sum request or payment, depending on the case.
They prepare the debit note along with the policy of an insured. Also, they attach it to the contract to indicate the amount of premium that you are to pay for the insurance. Essentially, the debit note shows how much you are to pay as a premium for insurance. The underwriters draw up the insurance policy and debit note, after which they forward it to the accounting department to further process and follow up on payment.
On the other hand, underwriters also issue credit notes, but this time to address claim payment to the insured. After preparation, they forward it to the account department for further processing.
Are there other uses of debit notes and credit notes in insurance?
Asides their basic tasks of indicating payment, they also use credit and debit notes to indicate additional premiums. This means that you can also use these notes to indicate extra transactions asides from the already established policy contract. However, this is a special situation, and does not happen in all policy contract executions.
Practical example of debit notes and credit notes uses in insurance
David just purchased a car and is in need of a good motor insurance policy. He visits one of the best insurance providers in his state and requests to purchase a vehicle insurance. Therefore, the assigned underwriter properly accesses his peculiar situation, and draws up a policy contract to fit.
To further process it, the underwriter provided David with a debit note along with the policy, indicating how much premium he would pay per time. They also forward a copy of the policy and debit note to the accounting department for premium payment monitoring.
Sadly, David had an accident when driving, which left the car considerably damaged. Immediately, he calls his agent to inform him about what just happened, and told him he’s coming to make a claim. David eventually sorted out the paperwork and requested a claim. On successful application, the underwriter forwards his policy along with a credit note to the accounting department for further processing.
The example above is a practical approach on how you can use debit and credit notes in insurance. However, there are instances that we use these notes outside these conditions.
Conclusion
Insurance is all about transferring risk in exchange for payments called premium. The official indicators of these payments during transactions are the credit and debit notes. Debit notes and credit notes in insurance are very important, therefore all parties should understand how it works.