A deposit premium is a refundable insurance premium that is paid at the beginning of a policy term to establish commercial property or liability coverage. The initial deposit provides coverage to the client, and the premium balance is returned if the agreement is terminated. The annual premium may be adjusted based on exposure and loss experience, and the insured can adjust the coverage level. If coverage is terminated within a specified period, the deposit amount is returned in full.
A deposit premium is a refundable insurance premium that is offered by the insured at the beginning of a policy term. Premiums of this type are generally associated with perpetual insurance plans, particularly property and liability coverage. In the event that the insurance company or the insured party decides to terminate the agreement, the premium balance of the deposit is returned to the client.
The idea behind a deposit premium is to assist in the establishment of some form of commercial property or liability coverage. The initial deposit serves as a means of providing coverage to the client, even if there is no established history to demonstrate that client’s exposure or loss. In this sense, the deposit premium is determined by evaluating the situation of the insurance applicant, projecting the estimated annual premium for the desired level of coverage, and then determining the actual amount of the deposit premium. When the terms of the plan call for annual premiums, that deposit premium will be equal to the annual premium determined by the projections. If the plan requests quarterly or semi-annual premium payments, the insurance provider will identify a percentage of the projected annual premium to serve as the basis for the deposit payment.
At the end of the first annual period, the insurer reviews the record of exposure and loss experience. Depending on the outcome of that review, the annual premium may remain the same or be adjusted up or down. At the same time, the insured will have the opportunity to adjust the level of coverage provided by the property or liability plan, based on a change in needs or other relevant circumstances. The idea of this opportunity is to more closely match the scope of coverage to the customer’s needs, based on real life experiences that occurred during the previous twelve months of coverage.
It is important to note that when a deposit premium is required as part of the process to implement coverage immediately, those funds are considered deposited with the insurer. In the event that the insured decides to terminate coverage within a specified period of time, the deposit amount is returned in full. The same is true if the insurance company also determines to terminate coverage within a period of time or for purposes that are identified in the terms and conditions found in the insurance contract.
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