# Premium trust account reconciliation for insurance agencies

Canonical: https://finbryn.com/us/services/insurance-accounting-support/insurance-agency-accounting-premium-trust

A premium trust account holds premiums an agency collects as a fiduciary for the carrier. Finbryn provides the monthly reconciliation for independent agencies, three ways (bank, general ledger, agency management system), and ties carrier statements to commission revenue, for your review and sign-off. Florida Statute 626.561 (checked 2026-10-19) treats these premiums as trust funds.

An independent agency handles two kinds of money that look alike in the bank. Premium and return premium belong to carriers and policyholders. Commission and fees belong to the agency. Florida Statute 626.561 (2026 edition, checked 2026-10-19) calls premiums "trust funds received by the licensee in a fiduciary capacity," and the other states we read use similar words with different mechanics.

Our monthly work for an agency has four parts. We reconcile the premium trust account to the bank statement, the general ledger and the trust report from Applied Epic, AMS360, HawkSoft or Sagitta, and list every reconciling item with its age. We tie each carrier's commission statement to the policies in the agency system and to commission revenue in QuickBooks Online. We post producer splits and chargebacks. And we keep a contingent commission accrual by carrier and true it up when the statement lands. The principal gets a one-page schedule: three balances, the difference between them (zero, when it works) and the items to chase.

Our line is simple. Reconciliation support for your premium trust account, for your review and sign-off. Finbryn never holds, controls or signs on trust funds. The agency opens the account, signs the checks and moves the money; we prepare the schedules from the statements and reports you send. State rules differ, so the sections below show what each source says and where it comes from, and your compliance contact or counsel decides what your state requires.

This page sits inside [insurance accounting support](/services/insurance-accounting-support). An agency that also runs program or delegated-authority business should read [MGA and program administrator accounting](/services/insurance-accounting-support/mga-program-administrator-accounting), where bordereaux and the carrier's quarterly account report come in. Agencies months behind on reconciliations start with a [catch-up project](/services/bookkeeping/catch-up-cleanup-bookkeeping). For fees, see [pricing](/pricing).

What you get: Monthly three-way trust reconciliation schedule with aged reconciling items; Carrier commission statements tied to the agency system and to revenue; Producer split and chargeback report by month; Contingent commission accrual schedule by carrier, with the true-up; Commission transfer list for the principal to approve

Software we work in: QuickBooks Online, Applied Epic, AMS360, HawkSoft, Sagitta

## What is a premium trust account?

A premium trust account is a bank account where an agency keeps premium money that belongs to carriers and policyholders, apart from its own operating cash. The agency holds that money as a fiduciary, so it can't treat the balance as working capital. Alaska's Division of Insurance, in Bulletin 94-09 (a 1994 clarification of its trust account rules), sorts the balance into four buckets: premium owed to insurers, return premium owed to policyholders, taxes and fees owed to third parties, and money the producer has left in as a reserve.

Those four buckets are a useful way to think about any state's account, because the reconciliation has to prove each one. Money comes in from policyholders on agency-billed policies and from carriers as return premium. It goes out as net premium to carriers, as refunds to policyholders and, once the rules allow, as commission to the agency's operating account. Direct-billed policies mostly bypass the account, but not always, as the agency bill section below explains.

## Is a premium trust account legally required?

It depends on the state, but each state we read treats agency-held premium as fiduciary money, and several tell the agency to keep it in a separate account. The rows below come from statutes and regulator pages we opened on 2026-10-19.

| State | Source | What it says |
| --- | --- | --- |
| California | Ins. Code 1733, 1734 | Premium is held in a fiduciary capacity. The licensee either remits it or keeps it in a separate trust account, at a bank within the United States, in an amount at least equal to the net premium and return premium owed; section 1734.5 is a third route. Updated 2021-07-23. |
| Florida | Fla. Stat. 626.561 | Premiums are trust funds held in a fiduciary capacity. Funds of an insurer the agent is not appointed by go in a separate account. Keep premium records 3 years. Diverting more than $300 is a felony. |
| New York | Ins. Law 2120 | Agents are fiduciaries and may not mingle funds without the principal's express consent. A separate deposit per principal is not required while each principal's funds are reasonably ascertainable from the books. Revision of 2014-10-03. |
| Illinois | 215 ILCS 5/500-115 | Money received is held in a fiduciary capacity and may not be misappropriated, converted or improperly withheld. Knowingly misappropriating more than $150 of premium is a Class 3 felony. |
| Michigan | DIFS Trust Account FAQ | A separate premium account is needed even for direct-bill policies if premium reaches your bank account. Updated 2026-01-09. |

Texas and other states are not in the table because we had not read their text as of 2026-10-19. Check your department of insurance, and give us the rule you follow; we reconcile to it. None of this is legal advice.

## How do I reconcile a premium trust account three ways: bank, ledger and agency management system?

Reconcile the bank to the ledger, then the ledger to the agency system's list of what the account owes, and all three should agree to the cent once reconciling items are listed. The first two legs are mechanical. The third is where agencies find problems, because the agency system knows what is owed by bucket and the bank only knows what moved. Figures below are Illustrative, made up, and not any agency's statement. Month-end is October 31, 2026.

| Source | Starting balance | Adjustments | Reconciled balance |
| --- | ---: | --- | ---: |
| Bank statement | 214,860.00 | Plus 6,200.00 deposits in transit; less 41,350.00 outstanding checks | 179,710.00 |
| General ledger, trust cash | 179,960.00 | Less 250.00 bank fee not yet booked | 179,710.00 |

| Agency system, amount owed | Amount |
| --- | ---: |
| Net premium owed to carriers | 151,420.00 |
| Return premium owed to policyholders | 9,870.00 |
| Premium taxes and fees owed to third parties | 3,600.00 |
| Agency-owned reserve left in the account | 12,000.00 |
| Earned commission not yet moved to operating | 2,820.00 |
| Total owed | 179,710.00 |

The three reconciled figures are 179,710.00, 179,710.00 and 179,710.00, so the difference is 0.00. The 2,820.00 of earned commission is the action item: it belongs to the agency and should leave the trust account on the schedule your state allows. We list it; the agency moves it. The diagram shows the monthly flow, from the statements you send, through each tie-out, to the principal's signature and any transfers the agency makes.

Diagram: How the monthly three-way reconciliation runs. Six steps: the agency sends statements and reports, the bank, ledger and agency system are tied in turn, the principal reviews and signs, and the agency makes any transfers.

## Can my agency pay commissions out of the trust account, and when does earned commission have to leave it?

Commission leaves the trust account only once it is earned, and the state or the carrier contract decides when that is. Michigan's regulator says that for an agency-bill policy the customer's payment goes into the separate premium account first, and the agent can transfer the commission to the operating account once the policy is bound or effective (DIFS Trust Account FAQ, updated 2026-01-09). On a mid-term cancellation, the unearned commission moves from operating funds back to the premium account so the full refund can be paid from it.

Alaska's 1994 bulletin takes a different line. It says earned commission need not be removed, that commission left in the account counts as reserve funds, and that when the carrier contract is silent commission is earned no earlier than the date both the funds are received and the coverage is bound. It also says unearned commission on a cancellation must come from the producer's funds. California section 1734 lets a licensee add funds to the account for advancing premium or reserving for return commissions.

Michigan describes commission moving to the operating account, and Alaska describes it leaving the account or staying in as a producer reserve. Neither describes paying producers straight from the trust account, and we do not set the books up that way. Each month's schedule shows earned commission as its own line, with a transfer list for the principal to approve.

## What is the difference between agency bill and direct bill for accounting?

Agency bill runs the premium through the agency's trust account, and direct bill mostly doesn't, so the two need different reconciliations. Michigan's regulator notes that its Code does not distinguish between the two: if the agent still receives and deposits premium funds, the separate account is needed.

| Item | Agency bill | Direct bill |
| --- | --- | --- |
| Who invoices the policyholder | The agency | The carrier |
| Where the premium payment lands | The agency's premium trust account | The carrier; any premium the agency receives still goes to the trust account |
| What the agency remits | Premium less commission, by the carrier's due date | Nothing, unless premium was misdirected to the agency |
| How commission arrives | Retained from premium once earned | Paid on the carrier's commission statement |
| What we reconcile | The trust account three ways, plus the statement | Statement to agency system, and to revenue |
| Usual break | Unremitted premium, unmoved commission | Missing policies, chargebacks |

Most agencies run both, which is why one carrier can appear in the trust reconciliation and the commission reconciliation in the same month. We code the two flows separately, so the cash flow report shows the agency's own money and not the premium passing through.

## How do I book contingent commissions before the carrier statement arrives?

Estimate them, constrain the estimate, and true it up when the statement arrives. Contingent (profit-sharing) commissions depend on the carrier's results, so under ASC 606 variable consideration is included only to the extent it is probable that a significant reversal of revenue will not occur. A public brokerage's Form 10-K for 2023 (Goosehead Insurance, filed 2024) describes its policy the same way: commissions are earned at a point in time on the policy effective date, and contingent commissions are estimated, constrained and recognized as the underlying policies are placed.

Our schedule keeps one line per carrier. Illustrative figures, one carrier, 2026 year:

| Step | Amount |
| --- | ---: |
| Estimate of the year's contingent commission, from the carrier's targets and results to date | 18,000.00 |
| Constrained amount, where it is probable a significant reversal will not occur | 13,500.00 |
| Accrued at December 31, 2026 | 13,500.00 |
| Received per the carrier's statement in March 2027 | 15,200.00 |
| True-up booked on the statement date | 1,700.00 |

The check: 13,500.00 accrued plus the 1,700.00 true-up equals the 15,200.00 received. Your CPA owns the revenue policy; we apply it consistently and show the true-up so it never surprises the owner.

## How do I split commissions among producers and handle chargebacks and 1099 versus W-2?

Post the carrier's commission once, split it by the producer agreement, and book a chargeback as a reduction of both the commission and the producer's share. Illustrative figures, with a 40/60 split between producer and agency:

| Line | Commission | Producer share | Agency share |
| --- | ---: | ---: | ---: |
| New policy, effective October 1 | 2,400.00 | 960.00 | 1,440.00 |
| Chargeback, cancelled November 30 | (600.00) | (240.00) | (360.00) |
| Net | 1,800.00 | 720.00 | 1,080.00 |

The shares foot: 720.00 plus 1,080.00 is 1,800.00. Whether the producer's 240.00 is netted from the next payout or billed back depends on the producer agreement, so we follow the agreement and flag any producer whose running balance goes negative.

Classification is the agency's decision, made with its tax adviser. A producer paid as an independent contractor gets a Form 1099-NEC when payments for 2026 reach $2,000 or more. The IRS lists a full-time life insurance sales agent, whose principal business is selling life insurance or annuity contracts primarily for one life insurance company, as a statutory employee; its list does not name property and casualty producers (IRS page reviewed 2026-01-18). We post pay the way you classify it.

## The process

1. **Agree the accounts and the rule**: List each premium trust account, its bank, the carriers behind it and the state rule your compliance contact follows.

2. **Collect statements and reports**: Bank statements, the agency system's trust report and each carrier's commission statement, sent after month-end cut-off.

3. **Reconcile the three legs**: Bank to ledger, ledger to the agency system's amount owed by bucket, with every reconciling item listed and aged.

4. **Tie carrier statements to revenue**: Each statement matched to policies in the agency system, then to commission revenue in QuickBooks Online.

5. **Post splits, chargebacks and accruals**: Producer shares, chargebacks and the contingent commission accrual by carrier, with the true-up shown.

6. **Principal reviews and signs off**: You review the one-page schedule and the transfer list, sign, and make any transfers yourself.

## Common problems we fix

| The problem | How we fix it |
| --- | --- |
| Earned commission sits in the trust account for months | It shows as its own line each month with a transfer list, and the agency moves the money. |
| A cancelled policy cuts commission but nobody reversed the producer's share | We post the chargeback to the policy, then to the producer split, and show the net. |
| The agency system and the ledger differ by a few dollars every month | We age each difference and trace it to its entry so small breaks don't pile up. |
| Carrier statements arrive late or in different layouts | Each carrier is tied on its own tab, so a late statement leaves one open item, not a blank month. |
| Contingent commission lands as a surprise in March | An estimate is accrued by carrier all year, and the true-up is shown against it. |

## By the numbers

| Figure | What it means | Source |
| --- | --- | --- |
| 3 years | minimum time to keep premium payment records after payment under Fla. Stat. 626.561(2) | [leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0626/Sections/0626.561.html](http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0626/Sections/0626.561.html) (2026-10-19) |
| 4 buckets | categories Alaska's Division of Insurance says a trust account reconciliation must support (Bulletin 94-09) | [commerce.alaska.gov/web/Portals/11/pub/Bulletins/B94-09.pdf](https://www.commerce.alaska.gov/web/Portals/11/pub/Bulletins/B94-09.pdf) (2026-10-19) |
| Jan 9, 2026 | last update to the Michigan DIFS Trust Account FAQ on separate premium accounts, interest and commission transfers | [michigan.gov/difs/industry/insurance-agency-audit/trust-account-faq](https://www.michigan.gov/difs/industry/insurance-agency-audit/trust-account-faq) (2026-10-19) |

Pricing: Quoted per engagement, based on the carriers, producers, trust accounts and agency system involved. ([See pricing](https://finbryn.com/us/pricing))

## Glossary

- **Premium trust account**: A separate bank account where an agency keeps premium and return premium it holds for carriers and policyholders.

- **Fiduciary capacity**: The legal position of holding money for others, which bars the agency from using it as its own.

- **Agency bill**: The agency invoices the policyholder, collects the premium and remits it to the carrier net of commission.

- **Direct bill**: The carrier invoices the policyholder and pays the agency its commission on a statement.

- **Three-way reconciliation**: Agreeing the bank balance, the ledger balance and the agency system's amount owed to one another.

- **Return premium**: Premium refunded after a cancellation or a reduction in coverage.

- **Contingent commission**: Extra commission paid by a carrier based on volume, growth or loss results, usually settled after year-end.

- **Chargeback**: Commission taken back by a carrier when a policy cancels early.

## Frequently asked questions: Insurance agency accounting and premium trust reconciliation

**Q: Is a premium trust account the same as a fiduciary account?**

A: In practice, yes. States call the account that holds premiums an agency collects for carriers and policyholders a premium trust account, a fiduciary account or a separate premium account. Florida Statute 626.561 says premiums are trust funds held in a fiduciary capacity, and Michigan's regulator calls it the separate premium account (DIFS FAQ updated 2026-01-09). Use your state's term in your records.

**Q: How often must an insurance agency reconcile its premium trust account, and how long do I keep the records?**

A: The sources we read set no single national reconciliation schedule. Alaska's Division of Insurance said in a 1994 bulletin that reconciliation must happen as often as internal financial statements are prepared, and recommended monthly; that is the schedule we follow. For records, Florida requires 3 years after payment and Oregon requires 3 years after policy expiration (both checked 2026-10-19). Confirm the current text for your state.

**Q: Can I earn interest on my premium trust account, and who keeps it?**

A: Often yes, subject to your state and your carrier agreements. Michigan's regulator says an agent may use an interest-bearing premium account unless a contracted insurer prohibits it, and the interest must be clearly identified and tracked (DIFS FAQ, 2026-01-09). Alaska's bulletin says interest left in the account must be removed periodically. We record interest on its own line so the agency can see whose money it is.

**Q: What does a premium trust shortage look like and how do I fix it?**

A: A shortage is a reconciled balance below the total the account owes by bucket. Common causes are commission moved out too early, a cancelled policy whose unearned commission never went back in, and a payment posted twice. Michigan's regulator says unearned commission on a mid-term cancellation moves from operating funds back to the premium account (DIFS FAQ, 2026-01-09). We list the items and their age; the agency decides how to cure it and whether a report is due.

**Q: What happens in a state insurance department audit of my trust account?**

A: Examiners compare your records with the account. Michigan's Agency Audit Section runs routine reviews of selected agencies under MCL 500.249, and Oregon's director may examine or audit any trust account and premium accounting records, at the producer's expense when they are kept outside Oregon (OAR 836-074-0047). Both were checked 2026-10-19. We prepare the current reconciliation, the carrier statements and the commission transfer list; the agency answers the examiner.

**Q: Chart of accounts for insurance agency template**

A: Keep premium money and agency money in separate sections. Assets: trust cash, operating cash and commissions receivable by carrier. Liabilities: premium payable to carriers, return premium payable, taxes and fees payable and producer commissions payable. Income: new commission, renewal commission, contingent commission and agency fees. Expenses: producer commissions and chargebacks. We build this in QuickBooks Online and mirror the four buckets in Alaska's Bulletin 94-09 (read 2026-10-19). See the [chart of accounts guide](/guides/chart-of-accounts-design).

**Q: What does monthly accounting for an insurance agency cost?**

A: Finbryn quotes per engagement, because there is no list price for this line yet. The drivers are the number of carriers, producers and trust accounts, whether you run agency bill, direct bill or both, and the agency system you use, such as Applied Epic, AMS360, HawkSoft or Sagitta. Scope and terms are set in writing before work starts (checked 2026-10-19). See [pricing](/pricing).

**Q: Who controls the premium trust account, the agency or Finbryn?**

A: The agency does. Reconciliation support for your premium trust account, for your review and sign-off. Finbryn never holds, controls or signs on trust funds. Michigan's regulator says the signer on a separate premium account does not need to hold an agent license (DIFS FAQ, 2026-01-09); whoever your agency picks, Finbryn is never one of the signers.

Related services:
- [MGA and program administrator accounting](https://finbryn.com/us/services/insurance-accounting-support/mga-program-administrator-accounting)
- [Bank and credit card reconciliation](https://finbryn.com/us/services/bookkeeping/bank-credit-card-reconciliation)
- [Chart of accounts design](https://finbryn.com/us/services/bookkeeping/chart-of-accounts-design)
- [1099 vendor tracking](https://finbryn.com/us/services/accounts-payable-receivable/1099-vendor-tracking)
- [Captive and risk retention group accounting support](https://finbryn.com/us/services/insurance-accounting-support/captive-rrg-accounting-support)
- [Statutory accounting and annual statement support for small insurers](https://finbryn.com/us/services/insurance-accounting-support/statutory-accounting-annual-statement-support)
- [Monthly bookkeeping](https://finbryn.com/us/services/bookkeeping/monthly-bookkeeping)

Industries:
- [Insurance agencies](https://finbryn.com/us/industries/insurance-agencies)

Related guides:
- [How to Design a Chart of Accounts (With SaaS and Ecommerce Examples)](https://finbryn.com/us/guides/chart-of-accounts-design)
- [Form 1099 Guide for Tax Year 2026: NEC, MISC, and 1099-K](https://finbryn.com/us/guides/form-1099-guide-2026)

## Sources

1. [California Insurance Code sections 1733 and 1734, text mirrored from leginfo.legislature.ca.gov (updated 2021-07-23)](https://california.public.law/codes/ca_ins_code_section_1734) (2026-10-19)
2. [Florida Statutes 2026, s. 626.561, Reporting and accounting for funds](http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0626/Sections/0626.561.html) (2026-10-19)
3. [New York Insurance Law s. 2120, Fiduciary capacity of insurance agents (revision of 2014-10-03)](https://www.nysenate.gov/legislation/laws/ISC/2120) (2026-10-19)
4. [Illinois 215 ILCS 5/500-115, Financial responsibilities (P.A. 92-386)](https://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=021500050K500-115) (2026-10-19)
5. [Michigan DIFS, Trust Account FAQ (updated 2026-01-09)](https://www.michigan.gov/difs/industry/insurance-agency-audit/trust-account-faq) (2026-10-19)
6. [Alaska Division of Insurance, Bulletin 94-09, Premium Trust Money Account Regulations (1994)](https://www.commerce.alaska.gov/web/Portals/11/pub/Bulletins/B94-09.pdf) (2026-10-19)
7. [Oregon Administrative Rules 836-074-0045, Accounting Records; Inspection](https://www.law.cornell.edu/regulations/oregon/Or-Admin-Code-SS-836-074-0045) (2026-10-19)
8. [Oregon Administrative Rules 836-074-0047, Examinations and Audits](https://www.law.cornell.edu/regulations/oregon/Or-Admin-Code-SS-836-074-0047) (2026-10-19)
9. [Goosehead Insurance, Form 10-K for the fiscal year ended December 31, 2023, revenue recognition](https://www.sec.gov/Archives/edgar/data/1726978/000172697824000018/gshd-20231231.htm) (2026-10-19)
10. [IRS, Statutory employees (page reviewed 2026-01-18)](https://www.irs.gov/businesses/small-businesses-self-employed/statutory-employees) (2026-10-19)
11. [IRS, Instructions for Forms 1099-MISC and 1099-NEC (2026 reporting threshold)](https://www.irs.gov/instructions/i1099mec) (2026-10-19)

Reviewed October 2026

[All services in Insurance accounting support](https://finbryn.com/us/services/insurance-accounting-support)

## Contact
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- Email: hello@finbryn.com
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