General Account
What Does General Account Mean?
A general account is an account where an insurance company deposits the premiums collected from the policies it underwrites. It is important to note that these funds are not tied to any specific policy but are treated collectively as aggregated premiums. Additionally, the insurance company uses the general account to support its daily operations.
Insuranceopedia Explains General Account
When a policyholder purchases a new insurance policy, they pay a premium to the insurance company in exchange for protection from risk. The insurance company uses the premiums from various clients in a variety of ways, including:
- Covering business-related expenses, such as operational and personnel costs.
- Setting aside a loss reserve to account for estimated losses throughout the year, including claim payments.
- Investing in assets with varying risk profiles and liquidity to maximize profits.
While insurers have the ability to allocate assets to cover specific policies or liabilities, many attribute all assets within the general account to all policies collectively. In situations where the assets in individual accounts may be insufficient to cover the policy risks associated with a particular account, the insurer would use funds from the general account to fill the gaps.
