In order to provide an amount of cash which would be necessary following the untimely death of an important personnel, many business enterprises carry life insurance policies on key personnel for e.g. a partnership might need cash to settle with the estate of a deceased partner without having to liquidate business properties and a corporation might wish to be protected from the unusual costs, which would be incurred in replacing an important executive. As the value of an important man to his company is likely to be rather high, and top executives are often well along in years, the premium costs of these life insurance policies can be substantial, hence a sound basis of accounting for life insurance should be established. Basically there are two major types of policies, which a firm may purchase to provide for the contingency of an officer's death. They are term insurance and ordinary life insurance. Term insurance provides protection for only a limited period of time and the cost of term insurance is based on the probability of death at the given age and an amount to cover expenses and profits on the sale of the policy. On the other hand ordinary life insurance differs from term insurance in that a level premium is charged throughout the life of the insured. In accounting treatment of these transactions, term insurance does not present much of a problem. While for ordinary life insurance there are two generally used methods of handling the premiums.