2 requirements to qualify a contract as a 'Long Term Contract'?

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Multiple Choice

2 requirements to qualify a contract as a 'Long Term Contract'?

Long-term contracts are defined by two features that ensure a stable, extended revenue stream. First, the policy term must run for at least 13 months, so the agreement truly spans more than a year rather than being a short-term or annual contract. Second, the contract must be noncancelable by the reporting entity and the premium must not be increased, ensuring the policyholder cannot be pushed out of the contract or face changing pricing. If either piece is missing, the contract wouldn’t provide the predictable, lasting cash flows that define a long-term arrangement. Therefore, both conditions must be present to qualify as a long-term contract.

Long-term contracts are defined by two features that ensure a stable, extended revenue stream. First, the policy term must run for at least 13 months, so the agreement truly spans more than a year rather than being a short-term or annual contract. Second, the contract must be noncancelable by the reporting entity and the premium must not be increased, ensuring the policyholder cannot be pushed out of the contract or face changing pricing. If either piece is missing, the contract wouldn’t provide the predictable, lasting cash flows that define a long-term arrangement. Therefore, both conditions must be present to qualify as a long-term contract.

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