Glossary

Premium capacity is the total amount of premiums for all exposures that the insurer can safely write in a given period. This figure is also restricted based on state regulations as well as the generally accepted accounting principles applicable to property-casualty (P&C) insurers. The insurer's written premium to policyholder's surplus is often calculated to ascertain this capacity. Reinsurance is frequently purchased to assist insurers in this area.

Premium discount is a volume discount applied to premiums that acknowledges the administrative cost savings associated with larger premiums. Mostly used in workers compensation insurance, it is available in states where rates are approved and published (insurers in loss cost states are already free to discount the expense factor of their premium). After experience rating, the premium discount is applied to premiums in excess of $5,000 on a graduated rate increasing with the premium. Premium discount is not available when a retrospective plan applies.

The premium load is the percentage of insurance premium deducted from the premium payments for universal life insurance policies to cover policy expenses, including the agent's sales commissions. Depending on the universal policy design, the premium load may be a front-end load, back-end load, or a combination of the two.

A premium loan is an amount borrowed against the cash value of a life insurance policy to make a premium payment, allowing the policy to stay in force.

A premium notice from the insurer states that the premium is or will soon be due.

A premium payment plan or installment plan that does not require an insured to pay the entire annual premium at the beginning of the policy period. This allows an insured to enjoy investment earnings on premium dollars during the time between payment of the premium at the policy's inception and the time of the actual loss. Three common types of premium payment plans include deferred premium plan, lagged premium plan, and discounted premium plan.

Premium prepayment is when the insured makes payment of future premiums.

Premium reserve is accounting process allocating the premium paid for an insurance policy over the life of the policy. In other words, one-twelfth of an annual premium is earned each month. An unearned premium reserve is maintained on an insurer's balance sheet to reflect the unearned premiums that would be returned to policyholders if all policies were canceled on the date the balance sheet was prepared.

Premium tax refers to a tax, imposed by each state, on gross premium (GWP) written by insurers allocable to risks located in that state. GWP means before reinsurance ceded but after salvage and subrogation.

A prepaid legal plan is an employee benefit plan that provides free or low-cost legal services to employees.