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How to record Life Insurance Premium paid in Accounts

When ever a person paid his or his dependents' Insurance Premium can account in his books of Accounts for assessment of Accounts. And there are two different possible methods available for Accounting of payment transaction of Premium of an Insurance to Life Insurance Corporation of India, or other such Insurance Companies. The most common thing is that you must understand what is the nature of such transaction?

How to record Life Insurance (LIC) Premium paid and where does it come in Balance Sheet using Tally.ERP 9
LIC Premium shown under Investments in Balance Sheet

How to record Insurance Premium in manual Accounting

Insurance paid is neither a Income nor an Expenditure but it is a long term Investment and it must be treated as savings so it must be shown on the Assets side in the Balance Sheet.

Premium Account Dr.
 To Cash or Bank Account

How to record Insurance Premium in Tally ERP 9

If you want to pass voucher entry for such a transaction in Tally ERP 9 accounting software then you need to have the following Ledgers in your Company.

  1. Cash or Bank Ledger under Cash-in-hand or Bank Accounts Head.
  2. Premium Ledger under Investments Head.

There will be a default Cash Ledger for every Company in Tally and you need to create Bank Account Ledger if you want to make payment through Bank; and a Premium Ledger needs to be created. We have discussed about ledger creation in How to Create a Ledger in Tally ERP 9 article, therefore skipping the step. After successful creation of the required Ledgers

  1. Select Accounting Vouchers in Gateway of Tally screen.
  2. Make the payment using the Payment Account Voucher Creation screen.

Note: Even you can debit Capital Account Ledger instead of debiting the Premium ledger. But there will be a drastic reduce in capital over a long period if we do this.

is the founder of AccountsGuy.Net with the view of providing Accounting and Technical support using Accounting package Tally ERP 9, and Office Tools to the people. I write articles on Accounts, Blogging, Computer Operating, and technical issues and some of my experiences on them for students, beginners. Follow our Networks or sing-up for the email newsletter below for your daily dose of Tips and Tricks.
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{ 14 Comments... read them below or add one }

health insurance plans said...

I'll definitely share this, I'm sure that it will help a lot of people. Thanks.

Venkateswarlu Kake said...

Thanks, we are trying to update the site with good content.

Jude Cameron said...


Venkateswarlu Kake said...

You are most welcome.

Anonymous said...

what is the treatment of lic premium paid by owner for his son or his father in accounts of owner???

Venkateswarlu Kake said...

As per Accounting LIC Premium paid off by the owner of his son of father or of any relation will be treated as Drawing. Hence , the entry will as follows.

Drawing Account Dr.
To Cash Account.

Deepak Agarwal said...

when to put ledger under investment head or under capital head

Venkkatesh K said...

Normally Capital Head will be used to refer a Person if Individual, a Number of Partners if a Partnership Firm, a number of Share Holders if a Company.

But Investment Head will be used to refer a some of Investments in Shares, Bonds, Insurance Companies etc.,

Deepak Agarwal said...

thank you sir....but i have one more this post its has been written that one can also group "insurance premium" under capital a/c....then this insurance premium is investment or drawings

Venkkatesh K said...

You can show the Insurance Premium either under Investments or Capital. If you show it in Capital Group the Capital Closing Balance will be reduced. If you show it under Investments a separate Assets will be shown in the Balance as well the Capital Closing Balance will be not be reduced.

Ghatkopar ClothStores said...

sir ,how to account lic policy maturity money with BONUS

Venkkatesh K said...

Read this article to record the LIC Maturity Amount in Tally.ERP 9

Unknown said...

Sir cn u tl me tht Life Insurance Premium Is a Drawing or Not.?

Venkkatesh K said...

Personal Life Insurance Premium can be shown either Drawings or Deposits or Investments. But the Insurances like Keyman Insurance in the Companies Accounting it has to be shown as Expenditure to the Company.

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