Policy Set Up Premium vs Final Premium

When setting up your first policy or your renewal on an annual basis, you’re required to come up with good faith estimates of each of the 6 rating components for the next 12 months. These estimated numbers broken out by each classification code will be the basis for the estimated premium that you’ll be charged when your policy is set up. Your insurance carrier will offer a payment plan so that you can spread the cost over many months.

The policy premiums you pay are just an estimate and you’ll be audited at the end of the policy year and an adjustment will be made at that time to take into account your final premium.

I would like to warn you against low balling your estimates. This is dangerous because you’ll be facing with a huge audit bill that is payable within 30 days. If you can’t pay within 30 days, your policy will be cancelled at that time for nonpayment of premium and you’ll find it very difficult to find a new carrier once you have that blemish on your record. It’s always best to set up your policy based on your best estimates, especially since low or no interest rate payment plans are available to spread the cost over many months.