Definition - What does General Account mean?
A general account is the account in which an insurance company deposits the premiums it collected from the policies it underwrites. It is worth noting that there is no collateral to a specific policy. Rather, a general account treats all the funds as premiums in aggregate. In addition, the insurance company also uses the general account to fund daily operations.
Insuranceopedia explains General Account
Upon purchasing a new insurance policy, the policyholder pays the insurance company a premium in return for protection from risk. The insurance company uses all the premiums from various clients in a wide variety of ways, including:
- Meeting various business-related expenses, such as operational and personnel expenses.
- Setting aside a loss reserve to cover the estimated losses over the course of the year, including the payment of claims
- Investing in assets that have varying risk profiles and liquidities to maximize profits
The insurer has the ability to set aside assets to cover specific policies or liabilities. However, many insurers often attribute all assets within the general account to all policies in aggregate. Situations could arise where the assets in individual accounts might be insufficient to meet the policy risks associated with the particular account. In this scenario, the insurer would rely on general account funds to fill the gaps in a particular account.