As part of our commitment to streamlining processes and enhancing cost-efficiency, Blue Horizon Management Company is pleased to announce a change in our insurance payment procedure that will benefit your Association by saving on insurance installment costs.
Effective immediately with each subsequent insurance policy renewal, we will be transitioning to an annual lump sum payment model for all insurance premiums, while simultaneously ensuring that there is enough operating cash on hand to facilitate such payments.
Blue Horizon will automatically implement and manage the following insurance payment optimization plan without charging additional processing fees.
Here's how the new payment process will work, along with its benefits:
Annual Lump Sum Payment: Instead of paying insurance premiums in installments, your HOA will make a single annual payment covering the entirety of insurance premiums for the designated period.
Accounting: From an accounting perspective, prepaid insurance is considered a prepaid expense, which shows as an asset on the balance sheet because the HOA has already paid for a future benefit (insurance coverage). As time passes and coverage is provided, a portion of the prepaid amount is "used up." This is recorded as equal expenses on the income statement and a reduction in the prepaid insurance asset on the balance sheet over the next 12 months of the insurance policy period.
Benefits of Prepayment: Prepaid insurance offers the benefit of potential cost savings because oftentimes insurance companies provide discounts or reduced rates for HOAs that choose to pay their premiums in full upfront. Additionally, prepaying the premium ensures uninterrupted coverage for the entire policy term, without the risk of missed payments or lapses in coverage.
Borrowing from Reserves: We understand that cash flow management is crucial for any HOA, and unexpected large payments can pose challenges. To address this concern, if the HOA is lacking enough operating funds to ensure proper cash balances after paying the insurance premium, Blue Horizon will initialize the process to borrow funds from your reserves account. This borrowing will be interest-free and fee-free (no extra charges from Blue Horizon), ensuring that your HOA can manage cash flow without incurring additional costs. We will set up a repayment schedule to ensure that the reserves loan is paid back to your reserves account within 12 months, to comply with Davis Stirling regulations. The loan balance will be tracked on your monthly balance sheets.
We believe that this change aligns with our shared goal of financial prudence and optimization. The transition to an annual lump sum payment will not only save your HOA from installment fees but also simplify the payment process and allow for more accurate budgeting.
If you have any questions or concerns, please do not hesitate to contact us (see contact information below). Your dedicated accounting specialist is available to help you navigate your HOA through any complicated accounting matters.
Thank you for your understanding and continued trust in our services. We look forward to working together to ensure the financial stability and success of your Homeowners' Association.