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What Is a Deposit Premium?

Malcolm Tatum
By
Updated May 16, 2024
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A deposit premium is a refundable insurance premium that is tendered by the insured party at the beginning of a policy term. Premiums of this type are usually associated with perpetual insurance plans, notably property and liability coverage. In the event that the insurance company or the insured party chooses to terminate the deal, the balance of the deposit premium is returned to the client.

The idea behind a deposit premium is to aid in the establishment of some type of commercial property or liability coverage. The up-front deposit serves as a means of providing the client with coverage even if there is no established history to demonstrate exposure or loss for that client. In this sense, the deposit premium is determined by assessing the situation of the insurance applicant, projecting the estimated annual premium for the level of coverage desired, then settling on the actual amount of the deposit premium. When the terms of the plan call for annual premiums, that deposit premium will equal the annual premium determined by the projections. If the plan calls for 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 record of exposure and loss experience is reviewed by the insurer. Depending on the outcome of that review, the annual premium may remain the same or be adjusted upward or downward. At this same time, the insured party will have the chance 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 conform the scope of coverage to the needs of the client, 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 the coverage immediately, those funds are considered to be deposited with the insurer. In the event that the insured party should choose to terminate the coverage within a specified time frame, the amount of the deposit is returned in full. The same holds true if the insurance company also determines to terminate the coverage within a time frame or for purposes that are identified in the terms and conditions found in the insurance contract.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
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Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
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