Welcome back to “From Mike’s Desk.” Today, I’m diving into a common topic our clients ask about: surplus lines billing and how payment plans work. To illustrate this, I’ll share a real-life example of an email I sent to a client, breaking down their premiums and payment structure. Understanding these details is crucial for smooth financial planning and ensuring your business stays protected without unexpected costs. Let’s explore the intricacies of surplus lines billing together.
What are Surplus Lines?
Surplus lines insurance covers unique or high-risk situations that standard insurance markets can’t cover. Non-admitted insurers who are not licensed in the state but can provide insurance on a surplus basis offer these policies. While surplus lines insurers aren’t subject to the same regulations as admitted carriers, they offer essential coverage options for businesses with special needs. This flexibility comes with different billing structures and payment plans, which I’ll explain through a real-life client example.
Key Terms in Surplus Lines Insurance
Minimum Earned Premiums: This is the minimum premium that is non-refundable if the policy is canceled early. It ensures the insurer recoups the basic costs associated with issuing the policy.
Surplus Lines Tax and Stamping: Surplus lines insurance involves additional taxes and stamping fees, which are state-imposed charges to regulate and record surplus lines policies.
Fully Earned Fees: These are fees that the insurer fully earns once the policy is issued, regardless of whether the policy is canceled later. They cover administrative and underwriting expenses.
Understanding these terms is crucial for comprehending surplus lines billing and payment structures.
Real-life Example: Email Correspondence with a Client
I’m sharing an email I recently sent to a client to clarify surplus lines billing and payment plans. This correspondence breaks down their premiums, payment schedules, and associated fees, illustrating how we handle surplus lines insurance. Here’s the detailed breakdown:
Dear Valued Client,
Earned premiums and billing in the surplus lines market differ significantly from standard carriers, such as [insert standard lines carrier name]. Here is a breakdown of the workings.
- Initial payment of $9,750.55
- The general liability, liquor liability, and commercial property policies are subject to a 25% minimum earned premium. This means 25% of each policy’s premium is non-refundable once effective.
- General & Liquor Liability Pure Premium: $21,276.00
- Property Pure Premium: $6,583.00
- Amount of deposit dedicated toward minimum earned premium: $6,964.75
- Surplus lines policies also come with tax. The tax is 25% earned as well.
- General & Liquor Liability Tax: $722.69
- Property Pure Tax: $220.47
- Amount of deposit dedicated toward minimum earned tax: $235.80
- Fully earned fees are standard in the surplus lines marketplace.
- General & Liquor Liability Fees: $1,950.00
- Property Pure Fees: $600.00
- Amount of deposit dedicated toward fees (fully earned): $2,550.00
After we collect and forward the initial payment to the appropriate parties, a premium finance company will pay the balance and bill you. Again, the surplus lines marketplace differs, as carriers require full payment within 30 days.
The premium finance company bills the balance in 10 installments and adds a finance charge.
- Balance of premium: $21,601.61
- Finance charge: $2,237.49
- Amount of payments: $2,383.91
Conclusion and Call to Action
Understanding surplus lines billing and payment plans can be complex, but breaking down the components and providing clear examples helps demystify the process. Knowing the details of minimum earned premiums, surplus lines tax and stamping, and fully earned fees can help you better manage your business’s financial picture.
If you have questions or need further assistance with surplus lines insurance or any other coverage, don’t hesitate to reach out. Complete our Business Insurance Qualification form below to discuss your insurance needs and discover how we can help protect your business effectively. Partner with us for tailored insurance solutions and peace of mind.
