Some policies charge what we call a minimum and deposit premium. These classes of business are based giving flexibility to the premium due to future turnover fluctuations. This is built into the premium to allow for variations in that actual turnover, up or down, when declared at the end of the policy period.
The minimum or deposit premium is based on a reasonable expectation of the low end of the turnover estimate and/or the minimum amount the insurer is prepared to charge.
The insurer will also declare a rate for future adjustment and if at the end of the policy period the turnover is greater than the premium generated by the minimum or deposit premium already charged then the insured is due to pay an adjustment premium calculated by applying the rate to the actual turnover and subtracting the premium already charged.
Eg – Est. Annual t/over – $1mil – – rate = 0.10%
Min/dep Prem @ say 80% = $1m x 0.10% x 80% = $800
Actual t/over = $1.1m
Adjustment = $1.1mil x 0.10% = $1,100 less $800 = $300
However, if the actual t/over is less than $800k then no refund is given.
To summarise then, the actual premium for this policy won’t be calculated until the end of the policy period. In the meantime, you must pay a deposit on the premium and agree that this deposit is only the minimum amount you will pay.
At the end of the policy period the total amount payable will be calculated based on turnover/values, etc. If the values/turnover are less than you estimated you will not have to pay any additional premium. However, if the values/turnover you estimated are less than the actual figures for the policy period you will have to pay an additional premium.”