What are Minimum & Deposit Insurance Premiums?

The world of insurance jargon can at times be difficult to understand, it’s no good having terms and conditions imposed that you probably haven’t come across before, or even understand, a Minimum & Deposit Premium is no exception.

A Minimum & Deposit Insurance premium (often referred to as an M&D premium) is usually applied to Public & Product Liability and Employers Liability Insurance policies. There isn’t generally a premium range that they are applied to other than to say they are usually for larger premiums. You wouldn’t find them on a policy for just one person, referred to as a per-capita insurance policy.

How are public & product liability premiums calculated?

There are many factors that an insurance underwriter will take into account when calculating your premium, the business description and how they feel that attracts a particular rate, the projected turnover of the business as well as the wage rolls for the coming year, and of course any claims that might have occurred previously. There may be other rating factors such as health and safety management, heights and depths worked at amongst other factors.

Once the underwriter has calculated the premium this becomes the minimum amount they will require for the commencement of the policy.

Does all the premium have to be paid at the commencement of the policy?

Putting aside any separate arrangements on how the premium might be spread with a premium finance company, the full amount will be payable at the beginning or inception of the policy, this is the Minimum & Deposit premium.

Are there any additional premiums to pay at any point?

Possibly, yes, the Minimum & Deposit premium is based on the information provided at the quote stage, turnover, wages, and the like. The wages and turnover have a rate applied to them which forms the minimum annual premium.

At the end of the year, you will need to provide your insurer with the actual amount of wages and turnover you have achieved, this is referred to as a declaration.

If you have not achieved the projections that you said you would at the beginning of the policy then usually there is no return of premium if however, you have increased your wages and turnover then the percentage rates applied at the beginning of the period will apply to the difference. This means that you will need to pay the difference between the inception premium and the recalculated premium.

In effect, you will only be paying for the amount of exposure that your insurer has had on your behalf.

Let’s look at a simple example.

At the beginning of the policy year, you estimated that your turnover would be £250,000 and your wage costs would be £100,000. You had a reasonable year and your turnover for that year increased to £350,000, and your wages also increased to £150,000.

In this case, the difference of £100,000 in your turnover and £50,000 in wages would need to be paid for at the same percentage rate that was used to calculate the initial premium.

If your turnover and wages increase so does the additional amount you pay.

What happens if my Turnover and Wage estimates provided fall short?

It is prudent to always be as accurate as possible, underestimate and you will pay an additional premium at the end of the policy period, however, overestimate and firstly you will pay a premium on that amount, however, you will not receive any premium in return.

Do all insurance policies have a minimum and deposit premium applied?

No, not all insurance policies have minimum and deposit premiums, some rely on you projecting the correct amounts and don’t ask for a declaration, although it should be noted that intentionally estimating your figures low will come under scrutiny if you had a claim. You need to be honest about your projections and estimates.

Can a minimum and deposit premium be less than 100% at the commencement of the policy?

Yes, sometimes an underwriter may say they will do a 90% minimum & deposit premium. In this scenario, the premium you will pay at the beginning of the policy will be 90% of the annual premium as a deposit premium.

At the end of the period when you submit your declared wages and turnover to the insurer, then the remaining 10% of the annual premium would become due for payment.

Similarly, should your declared figures exceed the original estimates, then a further additional premium would be due as explained above.

If, however, these do not exceed 90% of your original estimate, then there would be no premium adjustment.

What happens if I need to cancel a minimum and deposit insurance policy?

By the very nature of the policy being Minimum & Deposit, there would be no return of premium.

Minimum & Deposit premiums can appear complex, they are in fact quite simple. We can help and guide you through the maze of jargon used so you obtain insurance that you fully understand. Real Insurance are Liability Insurance specialists, our team has decades of knowledge that allows us to give you the right advice.