Some commercial policies cannot be priced exactly at inception because the final exposure is unknown. A deposit premium is the initial amount billed at the start of the policy period, subject to adjustment after an audit of actual exposure such as payroll or sales.

The deposit is typically based on an estimate provided by the insured. At year-end the insurer audits the records, calculates the earned premium on the true exposure, and either bills an additional premium or issues a refund. Minimum premiums may still apply even if the audited exposure is low.

Accurate estimating reduces large year-end adjustments. Insureds should understand the audit clause and maintain the records the insurer will need. Disputes over classification of payroll or inclusion of certain receipts are common and are best resolved with clear documentation.

• Initial premium based on estimated exposure
• Subject to later audit and adjustment
• Common in workers’ compensation and liability
• May be subject to a contractual minimum