Premium Basis for Policies

Premium basis: There’s a phrase that has a meaning that is not completely obvious insurance policies need a way to be priced thus the insurance companies develop a rate for whatever it is they’re trying to price and they need something to multiply that rate against to determine the premium for your insurance policy.

We call that thing the premium basis. The types of premium basis may vary by insurer or even by policy type but some of the common examples are the company annual sales, the annual payroll, or even the payroll of a particular class of employees.

It could possibly be the number of employees you have as a company any one of these factors may be defined as a premium basis for an insurance policy premium calculations vary by policy but the basic formula is pretty simple you take your premium basis and multiply it against the rate and you develop a premium slight variations exist where you may divide the premium basis by 100 or 1000 before you multiply it by the rate but if you have any questions just ask your agent and it should be very easy for them to explain it to you the key here is to make sure your premium basis accurately reflects your operations you don’t want to be surprised at the end of the policy with a large audit if you’re a fast-growing company or operations may change in the near future set check audits with your agent at either the 3 or 6 month mark to make sure it still reflects your company fairly well and there are no surprises at the end of the policy term and that’s your quick and easy summary on premium basis.