Prepaid insurance is classified as an asset.
Explanation: Prepaid insurance refers to payments made in advance for insurance coverage that will provide benefits over future periods. Since these payments are made for services that will be received in the future, they represent a future economic benefit to the company. Therefore, prepaid insurance is recorded on the balance sheet as a current asset until it is utilized, at which point it is then expensed. This classification as an asset reflects the company’s right to receive coverage and benefit from the insurance policy over time.