Policy Year vs Lease Year: Why Insurance Billing Never Lines Up
A landlord's insurance bill runs on three calendars that rarely match: the policy year (renewal date set by the carrier), the lease year (anniversary of the lease or calendar year for expense reconciliation), and the accounting year. Most billing problems with tenants come from the gaps between them. The fix is to bill estimates on one schedule, reconcile on another, and pro-rate whenever the dates do not line up.
The three calendars
- Policy year. The period the premium covers, for example March 1 to March 1. It sets the amount.
- Lease or reconciliation year. The period for which the tenant pays estimates and gets a true-up, often the calendar year. It sets when the tenant pays.
- Accounting year. What your books and tax filings use.
A premium that covers March to March shows up in two reconciliation years. Someone has to split it.
A simple way to handle it
- Charge estimates evenly. Take the current policy's property premium and bill one-twelfth each month (or as the lease provides).
- Reconcile on the lease's schedule. At year-end, compute the cost of insurance attributable to that period by pro-rating each policy by days.
- Reset estimates at renewal. When the new premium is known, reset the monthly amount going forward.
- Show the math. Attach a short schedule of the policy periods and the days in each reconciliation year.
Example
Policy A ran from March 1 of last year to March 1 of this year, with a premium of $9,000. Policy B starts March 1 of this year, with a premium of $9,900. For calendar-year billing, this year's cost is January and February from Policy A and March through December from Policy B.
- Policy A, 59 of 365 days: about $1,455
- Policy B, 306 of 365 days: about $8,300
The year's insurance cost is about $9,755. Estimates already paid are credited against it, and the difference is the true-up.
Situations that complicate it
- Mid-term changes. Coverage added or removed, a building added to a blanket policy, or a limit increase after a valuation update. Pro-rate by days.
- Cancellation and audit premiums. A return premium or additional premium after the term should flow through to the tenant's share.
- Financed premiums and installments. Decide whether to bill the tenant as you pay or at inception. The lease usually controls. Finance charges are often not reimbursable.
- Property sales and acquisitions. A building bought or sold mid-year belongs in one owner's billing or the other's, from the closing date.
- Lease start and end. A new tenant should not pay for coverage before its lease began unless the lease says so.
Make it a routine
- At each renewal, get the per-property premium from the agent. See how to allocate premium.
- Reset estimates the same week.
- Calendar the reconciliation date.
- Keep one file per property with policy dates, premiums and allocations.
FAQ
Should I bill the tenant on the policy year or the lease year?
Follow the lease. If it is silent, bill estimates monthly and reconcile on the same period as other expenses.
What if the premium changes mid-year?
Pro-rate each policy by days and credit estimates paid.
Can I bill the tenant when the premium is financed?
Usually you bill as the lease provides, often the full premium over the year. Finance charges are often not reimbursable.
What about a return premium?
Credit the tenant's share when it arrives.
This article is general education, not insurance, accounting or legal advice. The numbers above are illustrative. CRE Shield is licensed in Kansas and Texas and transacts insurance only in states where it is licensed.